ATTENTION! SITE "MOVED" TO A NEW ADDRESS:
http://journals.knute.edu.ua/foreign-trade

Cite as APA style citation
Stanišić N., Janković N. Valjutni kursy ta parytet kupivel'noi' spromozhnosti: dosvid krai'n Jevropy. Zovnishnja torgivlja: ekonomika, finansy, pravo. 2022. № 2. S. 96-106. Serija. Ekonomichni nauky. https://doi.org/10.31617/3.2022(121)08

 FREE FULL TEXT (PDF)
DOI: 10.31617/3.2022(121)08

 

UDC 336.74:339.722(4)=111
JEL Classification: F01; F02; F29; F42
 
STANIŠIĆ Nenad,
Dr, Professor
University of Kragujevac, Serbia
Lyceum of the Principality of Serbia, 3,
Kragujevac, 34000, Serbia
ORCID: 0000-0002-7070-4826
This email address is being protected from spambots. You need JavaScript enabled to view it.
 
JANKOVIĆ Nenad,
Dr, Professor
University of Kragujevac, Serbia
Lyceum of the Principality of Serbia 3,
Kragujevac, 34000, Serbia
ORCID: 0000-0001-6881-0067
This email address is being protected from spambots. You need JavaScript enabled to view it.


EXCHANGE RATES AND PURCHASING POWER PARITY:
THE CASE OF CENTRAL EUROPEAN

 

Introduction. The question of how exchange rates adjust is central to exchange rate policy, since countries with fixed exchange rates need to know what the equilibrium exchange rate is likely to be and countries with variable exchange rates would like to know what level and variation in real and nominal exchange rates they should expect. In broader terms, the question of whether exchange rates adjust toward a level established by purchasing power parity helps to determine the extent to which the international macroeconomic system is self-equilibrating
Analysis of recent researches and publications has shown that the published up to date papers aren’t systematic and can’t claim to be a complete analysis in the chosen field.
The aim is to test the validity of PPP hypothesis in the long run in former and current European transitional economies.
Methods. General scientific methods such as the systematic approach, theo­retical generalization and comparison, analysis, synthesis and the Levin–Lin–Chu (LLC) panel unit root test have been used in the research.
Research results. This paper tests the validity of purchasing power parity (PPP) hypothesis in the long run in selected European transitional economies. The database used in this paper contains monthly data on real effective exchange rate (REER) observed over 23 years, from March 1995 till November 2017. To test the hypothesis, the Levin–Lin–Chu (LLC) panel unit root test was employed. The results confirm that PPP holds both for Central European and Western Balkan states in the long run.
Conclusions. The equilibrium exchange rate question is central question to exchange rate policy. Purchasing power parity hypothesis was tested on the sample of 14 European countries form the Central and Eastern Europe and Western Balkan region. The database used in this paper contains monthly data on real effective exchange rate REER observed over 23 years, from March 1995 till November 2017. As PPP holds if the real exchange rate reverts to its equilibrium value over time, the unit root test was applied on panel REER dataset. The results of applied Levin–Lin–Chu (LLC) panel unit root tests confirmed that the PPP hypothesis holds for selected countries during the observed period. Additionaly, results confirmed that PPP hypothesis holds both for CEE and Western Balkan countries separately.

Keywords: purchasing power parity, real exchange rate, transition, Western Balkan states, panel unit root.


REFERENCES
  1. Rogoff, K. (1996). The purchasing power parity puzzle. Journal of Economic literature34(2), 647-668 [in English].
  2. Taylor, Alan, M. & Taylor, Mark, P. (2004). The Purchasing Power Parity Debate. Journal of Economics Perspectives, (Vol. 18), 4, 135-158. American Economic Association [in English] https://doi.org/10.1257/0895330042632744.
  3. Acaravci, S., & Acaravci, A. (2007). Nonstationarity and the level shift for Turkish real exchange rates. Empirical Economics Letters6, 517-523 [in English].
  4. Ocal, O. (2013). Purchasing Power Parity in the Case of Romania: Evidence from Structural Breaks, International Journal of Economics and Financial Issues, (Vol. 3), 4,973-976. Cag University, Adana-Mersin yolu uzeri, Yenice, 33800, Mersin, TURKEY [in English].
  5. Sideris, D. (2010). The Western Balkans on the road to the EU: An assessment of their integration with the euro zone using the Generalized Purchasing Power Parity approach, Bank of Greece, (pp. 1-13) [in English].
  6. Acaravci, A., & Ozturk, I. (2010). Testing Purchasing Power Parity in Transition Countries: Evidence from Structural Breaks. Bucharest University of Economic Studies, the Faculty of Business and Tourism. Amfiteatru Economic, 12(27), 190-198 [in English] https://doi.org/10.4102/sajems.v12i1.258.
  7. Levin, Lin, & Chu. (2002). «Unit root tests in panel data: Asymptotic and finite-sample properties», Journal of Econometrics, (Vol. 108), 1, 1-24 [in English] https://doi.org/10.1016/S0304-4076(01)00098-7.
  8. Tambiev, A. (2015). Purchasing Power Parity in the Nordic Countries, Master Thesis, Oslo and Akershus University College of Applied Sciences School of Business [in English].
  9. Aslan, A., & Kula, F. (2011). Purchasing Power Parity in Eastern European Countries: Further Evidence from Black Market Exchange Rates. Bucharest University of Economic Studies, the Faculty of Business and Tourism. Amfiteatru Ecomomics, (Vol. XIII), 29, 287-294 [in English].
  10. Sarno, L., & Taylor, M. P. (2002). Purchasing Power Parity and Real Exchange Rate, Imf Staff Papers, (Vol. 49), 1, 65-105 [in English].
  11. Darvas, Z. (2012). Real Effective Exchange Rates for 178 Countries: A New Database, Bruegel Working Paper, 2012/06 [in English].
  12. Darvas, Z. (2012). Compositional effects on productivity, labour cost and export adjustments(No. 2012/11). Bruegel Policy Contribution [in English].
  13. Sonora, R., & Tica, J. (2008). Structural Breaks and Purchasing Power Parity in the CEE and Post-War Yugoslav States, Working Paper Series, Paper 08-04, (1-20). University of Zagreb, Faculty of Economics and Busines [in English].
  14. Zdarek, V. (2010). Some New Empirical Evidence on the Relative PPP Hypothesis in New EU Member States, Research Centre for Competitiveness of the Czech Economy, Working Paper, 21, 1-49 [in English].
  15. Zdarek, V. (2012). Testing the Relative PPP Hypothesis in CEE States – Does the «PPP Puzzle» Still Keep Up?, Acta VŠFS, 2/2012, (Vol. 6), 108-135. University of Finance and Administration, in edition EUPRESS, Praha [in English].