An empirical test of the purchasing power parity for transition economies: Panel SURADF tests

Abstract

Purchasing Power Parity (PPP) for transition economies is tested using Panel Seemingly Unrelated Regressions Augmented Dickey–Fuller (SURADF) tests of Breuer et al. (2001) for the period of January 1995 to December 2008. Although the other panel-based unit-root tests are joint tests of a unit root for all members of the panel and are incapable of determining the mix of I(0) and I(1) series in the panel setting, the Panel SURADF tests test a separate unit-root null hypothesis for each individual panel member and therefore identify how many and which series in the panel are stationary processes. The PPP hypothesis is not confirmed for all the nine transition countries except Estonia and Romania when Breuer et al.’s Panel SURADF tests are conducted.

Keywords:

• purchasing power parity
• transition economic
• Panel SURADFtests

JEL Classification:

• C22
• C23

Acknowledgements

We are grateful to Professor Myles S. Wallace who kindly provided the RATS program codes. Any errors that remain are our own.

Notes

¹This study can also be extended to allow for the effect of shifts in the equilibrium real exchange rate over time. Future research will be in this direction.