New Empirical Evidence on the Purchasing Power Parity from VISEGRAD Group Countries

Martin Pažický ()
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Martin Pažický: Comenius University in Bratislava

A chapter in Eurasian Economic Perspectives, 2020, pp 121-138 from Springer

Abstract: Abstract The aim of this chapter is made to test the validity of purchasing power parity (PPP) between the Slovak Republic vis-à-vis the member countries of Visegrad Group using Augmented Dickey-Fuller (ADF) test for unit root and various techniques inspecting the presence of cointegration (i.e. the Durbin-Watson, the Engle-Granger and the Johansen procedures). Applying both the Engle-Granger and the Johansen methods, we found evidence of PPP between the Slovak Republic and Hungary and between the Slovak Republic and Poland, which is consistent with the economic theory. The existence of the long-run relationship was confirmed by the vector error correction model (VECM). However, we have not found any cointegrating vector in the case of the Slovak Republic and the Czech Republic, which rejects the existence of a persistent long-run equilibrium between exchange rate, domestic prices (i.e. in the Slovak Republic) and foreign prices (i.e., in the Czech Republic)

Keywords: Purchasing Power Parity (PPP); Exchange rate; Cointegration; Visegrad Group (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:spr:eurchp:978-3-030-53536-0_9

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DOI: 10.1007/978-3-030-53536-0_9

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