Purchasing Power Parity in Transition Countries: Panel Stationary Test with Smooth and Sharp Breaks

Resumen

This study examines whether the long-run purchasing power parity (PPP) holds in transition economies (Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania and Russia) using monthly data over the 1995?2011 period. We apply a recently introduced panel stationary test, which accounts for sharp breaks and smooth shifts. The results indicate that the PPP holds only in two countries (i.e., Lithuania and Poland).