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Purchasing Power Parity in Three Transition Economies

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  • David Barlow

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Abstract

This paper uses cointegration analysis on monthly data over April 1994-December 2000 to test the relevance theory of Purchasing Power Parity (PPP) for two advanced transition economies (Poland and the Czech Republic) and one lagging transition economy (Romania). PPP is not rejected between the lagging reformer and developed market economies, but is rejected between the advanced reformers and the developed economies. However, PPP is not rejected between the two advanced transition economies, though it is rejected between the lagging and advanced transition economies. The evolution of the real exchange rates over 1994-2000 suggest that a significant explanation for these findings is the central role of the exchange rate in the disinflation strategies of Poland and the Czech Republic in the early part of this period, in contrast to the managed float followed by Romania throughout the period. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • David Barlow, 2004. "Purchasing Power Parity in Three Transition Economies," Economic Change and Restructuring, Springer, vol. 36(3), pages 201-221, September.
  • Handle: RePEc:kap:ecopln:v:36:y:2004:i:3:p:201-221
    DOI: 10.1023/B:ECOP.0000024027.98358.4f
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    File URL: http://hdl.handle.net/10.1023/B:ECOP.0000024027.98358.4f
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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    4. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 257-275, June.
    5. Szapary, Gyorgy & Jakab, Zoltan M., 1998. "Exchange Rate Policy in Transition Economies: The Case of Hungary," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 691-717, December.
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    9. Christev, Atanas & Noorbakhsh, Abbas, 2000. "Long-run purchasing power parity, prices and exchange rates in transition: The case of six Central and East European countries," Global Finance Journal, Elsevier, vol. 11(1-2), pages 87-108.
    10. Kornélia Krajnyák & Jeromin Zettelmeyer, 1998. "Competitiveness in Transition Economies: What Scope for Real Appreciation?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 309-362, June.
    11. David Barlow & Roxana Radulescu, 2002. "Purchasing Power Parity in the Transition: The Case of the Romanian Leu Against the Dollar," Post-Communist Economies, Taylor & Francis Journals, vol. 14(1), pages 123-135.
    12. Desai, Padma, 1998. "Macroeconomic Fragility and Exchange Rate Vulnerability: A Cautionary Record of Transition Economies," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 621-641, December.
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    Cited by:

    1. MITEZA, Ilir, 2006. "Devaluation And Output In Five Transition Economies: A Panel Cointegration Approach Of Poland, Hungary, Czech Republic, Slovakia And Romania, 1993-2000," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(1).

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    Keywords

    disinflation; real exchange rate; transition;

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