Purchasing power parity: Evidence from a transition economy

    Authors

    J. Payne; J. Lee;R. Hofler

    Comments

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    Abbreviated Journal Title

    J. Policy Model.

    Keywords

    purchasing power parity; Croatia; transition; productivity; UNIT-ROOT HYPOTHESIS; OIL-PRICE SHOCK; GREAT CRASH; EXCHANGE-RATES; BREAKS; TESTS; Economics

    Abstract

    Whether the purchasing power parity (PPP) theory of exchange rate determination holds for transition economies is an interesting question, given peculiar situations of transition economies. In this paper, we examine the real exchange rate for Croatia, a transition economy that has had some success in moving towards a market economy. Using a battery of tests that allow for a maximum of two structural breaks whose locations are determined endogenously from the data, we failed to find evidence supporting the validity of PPP for the Croatian economy. Thus, the conjecture that transition economies experiencing growth in productivity and real wages should experience real appreciation (thereby introducing doubt as to whether purchasing power parity holds) is substantiated by our results. (c) 2005 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.

    Journal Title

    Journal of Policy Modeling

    Volume

    27

    Issue/Number

    6

    Publication Date

    1-1-2005

    Document Type

    Article

    Language

    English

    First Page

    665

    Last Page

    672

    WOS Identifier

    WOS:000231840900002

    ISSN

    0161-8938

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