The Purchasing Power Parity Puzzle and Imperfect Knowledge: The Case of the Polish Zloty

Robert Kelm ()

Central European Journal of Economic Modelling and Econometrics, 2017, vol. 9, issue 1, 1-27

Abstract: A review of the contemporary mainstream literature on exchange rate modelling clearly indicates that the rational expectations hypothesis (RE) is almost invariably taken as a point of reference in empirical investigations. This paper tests the RE hypothesis for the Polish foreign exchange market within the Roman Frydman and Michael Goldberg model that builds on the hypothesis of imperfect knowledge economics (IKE). The employed modelling strategy consists in the formulation of assumptions about the persistence of nominal rate, prices and interest rates and of the verification of competing scenarios congruent with RE and IKE. As a result of the analysis, the RE hypothesis is rejected in favour of the IKE alternative.

Keywords: purchasing power parity; expectations; econometric modelling; cointegration; transition economies (search for similar items in EconPapers)
JEL-codes: C32 C51 E31 F31 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:9:y:2017:i:1:p:1-27

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