EconPapers    
Economics at your fingertips  
 

The Purchasing Power Parity in Emerging Europe: Empirical Results Based on Two-Break Analysis

Zorica Mladenović (), Kosta Josifidis and Slađana Srdić ()
Additional contact information
Zorica Mladenović: Faculty of Economics Belgrade, University of Belgrade, Serbia
Slađana Srdić: Department of European Economics and Business, Faculty of Economics Subotica, University of Novi Sad, Serbia

Panoeconomicus, 2013, vol. 60, issue 2, 179-202

Abstract: The purpose of the paper is to evaluate the validity of purchasing power parity (PPP) for eight countries from the Emerging Europe: Hungary,Czech Republic, Poland, Romania, Lithuania, Latvia, Serbia and Turkey. Monthly data for euro and U.S. dollar based real exchange rate time series are considered covering the period: January, 2000 - August, 2011. Given significant changes in these economies in this sample it seems plausible to assume that real exchange time series are characterized by more than one time structural break. In order to endogenously determine the number and type of breaks while testing for the presence of unit roots we applied the Lee-Strazicich approach. For two euro based real exchange rate time series (in Hungary and Turkey) the unit root hypothesis has been rejected. For the U.S. dollar based real exchange rate time series in Poland, Romania and Turkey the presence of unit root has been rejected. To assess the adjustment dynamics of those real exchange rates that were detected to be stationary with two breaks, the impulse response function is calculated and half-life is estimated. Our overall conclusion is that the persistence of real exchange rate in Emerging Europe is still substantially high. The lack of strong empirical support for PPP suggests that careful policy actions are needed in this region to prevent serious exchange rate misalignment.

Keywords: Purchasing power parity; Real exchange rate; Unit root test; Structural breaks; Emerging economies (search for similar items in EconPapers)
JEL-codes: C22 F30 F41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.panoeconomicus.rs/casopis/2013_2/03%20Z ... Sladjana%20Srdic.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:voj:journl:v:60:y:2013:i:2:p:179-202

Access Statistics for this article

Panoeconomicus is currently edited by Kosta Josifidis

More articles in Panoeconomicus from Savez ekonomista Vojvodine, Novi Sad, Serbia
Bibliographic data for series maintained by Ivana Horvat ( this e-mail address is bad, please contact ).

 
Page updated 2021-06-11
Handle: RePEc:voj:journl:v:60:y:2013:i:2:p:179-202