WHAT IS NEW ABOUT THE PPP THEORY IN THE NORDIC COUNTRIES? EVIDENCE FROM PANEL UNIT ROOT TESTS WITH SHARP BREAKS AND GRADUAL SHIFTS

Küçük Resim Yok

Tarih

2022

Dergi Başlığı

Dergi ISSN

Cilt Başlığı

Yayıncı

Inst Economic Forecasting

Erişim Hakkı

info:eu-repo/semantics/closedAccess

Özet

The Purchasing Power Parity (PPP) theory simply refers to a rate of exchange that eliminates price level differences between countries, equalizing the purchasing power of different currencies. The theory provides some essential tools in determining exchange rates and equilibrium conditions. This study investigates the long run validity of the PPP in five Nordic countries over the monthly data in the 1976-2019 period. We use a panel LM unit root test to detect sharp breaks as well as a novel method based on the Fourier approximation taking into account gradual shifts in the real exchange rates. Firstly, despite the past evidence, results of the panel unit root test with sharp break are mostly consistent with the PPP relationship in the group of Nordic countries. Secondly, we obtain mixed results from the Fourier panel stationarity test based on the number of frequencies, implying notable evidence for the PPP in the whole and pre-Euro periods. Taking together results of the two tests, it is possible to conclude that an empirical approach which captures the nature of structural change in price adjustments is more preferable as compared to conventional tests.

Açıklama

Anahtar Kelimeler

Purchasing Power Parity, Nordic Countries, Panel Lm Unit Root Test, Fourier Approximation

Kaynak

Romanian Journal Of Economic Forecasting

WoS Q Değeri

Q4

Scopus Q Değeri

Q3

Cilt

25

Sayı

2

Künye