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Revisiting purchasing power parity in Eastern European countries: quantile unit root tests

Author

Listed:
  • Mohsen Bahmani-Oskooee

    (University of Wisconsin-Milwaukee)

  • Tsangyao Chang

    (Feng Chia University)

  • Tsung-Hsien Chen

    (Chaoyang University of Technology)

  • Han-Wen Tzeng

    (Overseas Chinese University)

Abstract

This study applies quantile unit root test proposed by Koenker and Xiao (J Am Stat Assoc 99(467):775–787, 2004) and Galvao (J Econom 152:165–178, 2009) to revisit the purchasing power parity in 7 transition countries: Bulgaria, Czech Republic, Hungary, Lithuania, Poland, Romania, and Russia over 1998M1 to 2015M3. While traditional unit root tests fail to reject unit root hypothesis, the two quantile unit root tests did reject unit root null hypothesis in all countries, providing support for the PPP and solving the PPP puzzle. The estimated half-life based on quantile autoregressive model is about 12–25 months (1–2 year).

Suggested Citation

  • 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.
    • Handle: RePEc:spr:empeco:v:52:y:2017:i:2:d:10.1007_s00181-016-1099-z
    DOI: 10.1007/s00181-016-1099-z
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    2. Ranjan Aneja & Arjun, 2022. "Impact of Terms of Trade on GDP in the Context of Prebisch–Singer Theorem: Evidence from Egypt and Guinea," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(5), pages 2561-2575, October.
    3. Mustafa Kocoglu & Phouphet Kyophilavong & Ashar Awan & So Young Lim, 2023. "Time-varying causality between oil price and exchange rate in five ASEAN economies," Economic Change and Restructuring, Springer, vol. 56(2), pages 1007-1031, April.
    4. Stewart, Chris, 2023. "Re-evaluating whether absolute or relative purchasing power parity is being tested when using price indices," Economics Discussion Papers 2023-1, School of Economics, Kingston University London.
    5. Nusair, Salah A. & Olson, Dennis, 2019. "The effects of oil price shocks on Asian exchange rates: Evidence from quantile regression analysis," Energy Economics, Elsevier, vol. 78(C), pages 44-63.

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    More about this item

    Keywords

    Purchasing power parity; Quantile unit root test; Transition countries;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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