PPP in Central and Eastern European economies: further evidence from panel unit root tests

Abstract

The question of the validity of the Purchasing Power Parity (PPP) hypothesis in European transition countries remains relevant and empirically unsettled. This article aims to contribute to this debate by using an updated monthly database on real exchange rates for 12 Central and Eastern European economies. We implemented a range of panel unit root tests characterized by the rejection of the cross-sectional independence hypothesis and taking the US Dollar (USD) and the euro as numeraire currencies separately into account in the testing procedures. The results reported in this study provide additional evidence supporting the PPP proposition.

Keywords:

• purchasing power parity
• panel unit root tests
• stationarity
• real exchange rates

JEL Classification:

• C23
• E31
• F31
• F40