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Purchasing Power Parity in transition economies: evidence from the Commonwealth of Independent States

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  • Erdinc Telatar
  • Mubariz Hasanov

Abstract

This article tests the validity of Purchasing Power Parity (PPP) for Commonwealth of Independent States (CIS) countries. For this purpose we test whether the real exchange rate series of 10 CIS countries vis-a-vis the US dollar follow a stationary process. Considering the fact that the CIS countries have undergone major structural changes during the transition period, in addition to conventional unit root tests, we employ recently developed unit root tests that allow for structural breaks and non-linearities. When possible structural changes and non-linearities are not taken into account, the null hypothesis of unit root is rejected only in two out of 10 series. However, allowing for structural breaks and/or non-linearities in the data generating process results in more rejection of the null hypothesis of unit root. All in all, our results provide evidence in favour of the PPP hypothesis in these transition countries.

Suggested Citation

  • Erdinc Telatar & Mubariz Hasanov, 2009. "Purchasing Power Parity in transition economies: evidence from the Commonwealth of Independent States," Post-Communist Economies, Taylor & Francis Journals, vol. 21(2), pages 157-173.
    • Handle: RePEc:taf:pocoec:v:21:y:2009:i:2:p:157-173
    DOI: 10.1080/14631370902778468
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    References listed on IDEAS

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    1. Gérard Roland, 2004. "Transition and Economics: Politics, Markets, and Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 026268148x, December.
    2. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," NBER Working Papers 7664, National Bureau of Economic Research, Inc.
    3. Gomulka, Stanislaw, 2000. "Macroeconomic policies and achievements in transition economies, 1989-1999," LSE Research Online Documents on Economics 20160, London School of Economics and Political Science, LSE Library.
    4. Mr. Stanley Fischer & Ms. Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 2000/030, International Monetary Fund.
    5. Stanislaw Gomulka, 2000. "Macroeconomic Policies and Achievements in Transition Economies, 1989-1999," CEP Discussion Papers dp0475, Centre for Economic Performance, LSE.
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    Cited by:

    1. Mohsen Bahmani-Oskooee & Tsangyao Chang & Tsung-Hsien Chen & Han-Wen Tzeng, 2017. "Revisiting purchasing power parity in Eastern European countries: quantile unit root tests," Empirical Economics, Springer, vol. 52(2), pages 463-483, March.
    2. Yang-Cheng Ralph Lu & Tsangyao Chang & Kuei-Chiu Lee & Han-Wen Tzeng, 2011. "An empirical test of the purchasing power parity for transition economies: Panel SURADF tests," Applied Economics Letters, Taylor & Francis Journals, vol. 18(17), pages 1691-1696.
    3. Öge Güney, Pelin & Hasanov, Mübariz, 2014. "Real interest rate parity hypothesis in post-Soviet countries: Evidence from unit root tests," Economic Modelling, Elsevier, vol. 36(C), pages 120-129.
    4. Nermin Yasar, 2020. "Stationarity Properties of Renewable Energy Consumption in the Commonwealth of Independent States," International Journal of Energy Economics and Policy, Econjournals, vol. 10(1), pages 155-159.
    5. Zeynel Abidin Ozdemir & Emre Aksoy, 2015. "Are real exchanges rate series really persistent?: evidence from three commonwealth of independent states countries," Applied Economics, Taylor & Francis Journals, vol. 47(40), pages 4299-4309, August.
    6. Siyue Liu & Dongxiang Zhang & Tsangyao Chang, 2012. "Purchasing power parity -- nonlinear threshold unit root test for transition countries," Applied Economics Letters, Taylor & Francis Journals, vol. 19(18), pages 1781-1785, December.
    7. Hasanov, Mübariz & Araç, Aysen & Telatar, Funda, 2010. "Nonlinearity and structural stability in the Phillips curve: Evidence from Turkey," Economic Modelling, Elsevier, vol. 27(5), pages 1103-1115, September.
    8. He, Huizhen & Ranjbar, Omid & Chang, Tsangyao, 2013. "Purchasing power parity in transition countries: Old wine with new bottle," Japan and the World Economy, Elsevier, vol. 28(C), pages 24-32.
    9. Samira Haddou, 2011. "Is Tunisian Real Effective Exchange Rate Mean Reverting? Evidence from Nonlinear Models," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 18(1), pages 164-178, September.
    10. Hasanov, Mübariz & Telatar, Erdinc, 2011. "A re-examination of stationarity of energy consumption: Evidence from new unit root tests," Energy Policy, Elsevier, vol. 39(12), pages 7726-7738.
    11. He, Huizhen & Chang, Tsangyao, 2013. "Purchasing power parity in transition countries: Sequential panel selection method," Economic Modelling, Elsevier, vol. 35(C), pages 604-609.

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