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Structural breaks and Purchasing Power Parity in the CEE and Post-War former Yugoslav States

Author

Listed:
  • Robert J. Sonora

    () (Department of Economics, School of Business Administration, Fort Lewis College)

  • Josip Tica

    () (Faculty of Economics and Business, University of Zagreb)

Abstract

In this paper we investigate purchasing power parity in the CEE and post-War former-Yugoslav states during EU integration process 1994-2006. This work stems from longer term tests of real exchange rate convergence in the former Yugoslavia. This period is of interest on two fronts: First, it investigates real exchange dynamics in the aftermath of war financed in part through seignorage; and second, we investigate the level of economic integration with the European Union following the break up of the former Yugoslavia. Given the short run nature of the available data we use panel unit root tests with and without structural breaks. Preliminary results suggest that real exchange rates between the former Yugoslav states and Germany are stationary when breaks are accounted for. Given the size of nominal shocks in the region, particularly in the early 1990s, preliminary results indicate that convergence to the long run equilibrium is relatively quick.

Suggested Citation

  • Robert J. Sonora & Josip Tica, 2008. "Structural breaks and Purchasing Power Parity in the CEE and Post-War former Yugoslav States," EFZG Working Papers Series 0804, Faculty of Economics and Business, University of Zagreb.
  • Handle: RePEc:zag:wpaper:0804
    as

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    File URL: http://web.efzg.hr/repec/pdf/Clanak%2008-04.pdf
    File Function: First version, 2008
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    References listed on IDEAS

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    Cited by:

    1. Maican, Florin G. & Sweeney, Richard J., 2013. "Real exchange rate adjustment in European transition countries," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 907-926.

    More about this item

    Keywords

    purchasing power parity; Economic Integration; panel unit root tests;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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