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

Mohsen Bahmani-Oskooee (), Tsangyao Chang (), Tsung-Hsien Chen () and Han-Wen Tzeng ()
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Tsung-Hsien Chen: Chaoyang University of Technology
Han-Wen Tzeng: Overseas Chinese University

Empirical Economics, 2017, vol. 52, issue 2, 463-483

Abstract: 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).

Keywords: Purchasing power parity; Quantile unit root test; Transition countries (search for similar items in EconPapers)
JEL-codes: C22 F31 (search for similar items in EconPapers)
Date: 2017
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