Purchasing Power Parity for Transition Countries

This study applies a panel SURADF test with a Fourier function to investigate the properties of long-run purchasing power parity (PPP) in a sample of transition countries (i.e., Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Russia) between January 1995 and December 2008. The empirical results from the univariate unit root tests indicate that PPP does not hold in the transition countries under study. However, results from the panel SURADF test with a Fourier function indicate that PPP is valid for all the countries, with the exception of Russia. These results have important policy implications for the nine transition countries under study.