Long-run purchasing power parity, prices and exchange rates in transition: The case of six Central and East European countries

Atanas Christev*, Abbas Noorbakhsh

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

38 Citations (Scopus)

Abstract

This paper presents empirical results on the hypothesis of long-run purchasing power parity (PPP) with respect to the exchange-rate regimes in six Central and East European countries. The analysis employs cointegration theory to examine the movements of prices and exchange rates in transition to a market economy. Our results are based on system estimation procedures developed by Stock and Watson (1993) and Johansen (1991). We find moderate evidence to support long-run equilibria, however, the cointegrating vector values do not yield to easy interpretation and violate the symmetry and proportionality conditions suggested by PPP. We provide an explanation for such behavior and find that it is consistent with the existing literature on transition and foreign exchange markets.

Original languageEnglish
Pages (from-to)87-108
Number of pages22
JournalGlobal Finance Journal
Volume11
Issue number1-2
DOIs
Publication statusPublished - 2000

Keywords

  • Cointegration
  • Purchasing power party
  • Transition economics

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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