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Purchasing Power Parity among developing countries and their trade-partners. Evidence from selected CEECs and Implications for their membership of EU

Nikolaos Giannellis () and Athanasios P Papadopoulos ()

No 55, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group

Abstract: The purpose of the paper is twofold. Firstly, we test the validity of the PPP hypothesis for selected CEEC (Czech Republic; Hungary; Poland and Slovak Republic). Secondly, we attempt to define those countries’ trade linkages between Euro Area; US and the rest of the world. By applying both univariate unit root and a multivariate cointegration test, we find stronger evidence of PPP from the latter test. Moreover, any failure to accept PPP cannot be attributed to structural breaks, apart from one case (between Czech Republic and EU). In overall, there is evidence of strong-form PPP in 6 out of the 8 cases, while for the rest two, weak-form PPP is accepted. Thus, we confirm PPP as a long run equilibrium baseline for these exchange rates per EURO. Furthermore, the fact that PPP holds between these countries and Euro Area indicates absence of trade frictions and other barriers. The implied well-developed trade relations are consistent with those countries’ entry into EMU.

Keywords: PPP; Unit Root; Structural Breaks; Cointegration; Developing Countries (search for similar items in EconPapers)
JEL-codes: C22 C32 C52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2007-02-02
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http://repec.org/mmf2006/up.30705.1144874831.pdf (application/pdf)

Related works:
Journal Article: Purchasing Power Parity among Developing Countries and their Trade-Partners. Evidence from Selected CEEC and Implications for their Membership of EU (2006)
Working Paper: Purchasing Power Parity among developing countries and their trade-partners. Evidence from selected CEECs and Implications for their membership of EU (2006) Downloads
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