Testing the Purchasing Power Parity: Evidence from the New EU Countries
AbstractThis paper examines the validity of the purchasing power parity between each of the twelve new EU countries vis-�-vis the Eurozone. Using the Johansen cointegration methodology for a period that begins from the mid-1990s and allowing for a structural break for the countries that joined the EU on May 2004, it is found that there is a long-run equilibrium relationship among the nominal exchange rate, the domestic prices and the foreign prices, for all the new EU countries. The evidence also suggests that the PPP vector enters the cointegration space for Bulgaria, Cyprus, Romania and Slovenia, which means that only for these countries the long-run PPP vis-�-vis the Eurozone is verified. For the rest of the new EU countries the long-run PPP is violated, may due to the fact that the currencies of these countries have been pegged to the euro and cannot reflect the inflation differences vis-�-vis the Eurozone.
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Bibliographic InfoPaper provided by University of Crete, Department of Economics in its series Working Papers with number 0720.
Length: 14 pages
Date of creation: 17 Apr 2007
Date of revision:
Purchasing Power Parity; EU Enlargement; Cointegration; Structural Break; Symmetry and Proportionality.;
Other versions of this item:
- Minoas Koukouritakis, 2009. "Testing the purchasing power parity: evidence from the new EU countries," Applied Economics Letters, Taylor and Francis Journals, vol. 16(1), pages 39-44.
- F15 - International Economics - - Trade - - - Economic Integration
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-28 (All new papers)
- NEP-CBA-2007-04-28 (Central Banking)
- NEP-EEC-2007-04-28 (European Economics)
- NEP-IFN-2007-04-28 (International Finance)
- NEP-MON-2007-04-28 (Monetary Economics)
- NEP-TRA-2007-04-28 (Transition Economics)
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