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Purchasing Power Parity in Transition Economies: Does It Hold in the Czech Republic, Hungary and Slovenia?

2007; Taylor & Francis; Volume: 19; Issue: 4 Linguagem: Inglês

10.1080/14631370701680063

1465-3958

Jani Bekő, Darja Boršič,

Market Dynamics and Volatility

Abstract This article assesses the theory of purchasing power parity for the Czech Republic, Hungary and Slovenia in comparison with Austria, Germany, France and Italy, employing data from January 1992 to December 2006. The unit root tests applied fail to prove stationarity of the real exchange rate series. Although cointegration was found among nominal exchange rates and selected consumer price indices, the theory of purchasing power parity could not be confirmed for any of the three advanced transition countries. Following the literature on price movements and macroeconomic policies in transition economies, we list some arguments that substantiate our findings. Notes Jani Bekő, Associate Professor, Faculty of Economics and Business, University of Maribor, Razlagova 14, 2001 Maribor, Sloveniajani.beko@uni-mb.si.Darja Boršič, Faculty of Economics and Business, University of Maribor, Razlagova 14, 2001 Maribor, Sloveniadarja.borsic@uni-mb.si. The authors wish to thank an anonymous referee for helpful comments on a previous version of this article. 1 Žižmond & Novak (Citation2006) show that in 1996–2002 the contribution of labour force reallocation in Slovenia to the aggregate growth of labour productivity was trivial. 2 Rogoff (Citation1996) stresses that it takes three to five years for one half of the exchange rate deviation from the PPP level to be completed.