COINTEGRATION ANALYSIS OF PURCHASING POWER PARITY IN REPUBLIC OF CROATIA

Ivan Kozul ()
Additional contact information
Ivan Kozul: High School for inspection and personnel management Split

UTMS Journal of Economics, 2013, vol. 4, issue 3, 253-268

Abstract: This paper examines the validity of purchasing power parity (PPP) hypothesis in the Republic of Croatia. The main aim is to test whether the PPP Theory holds in the case of the Republic of Croatia and whether the PPP Theory is an appropriate method on which monetary policy makers can rely in determining the size of the market exchange rate deviations from its long-run value. The PPP Theory in the Republic of Croatia has been tested using methods of cointegration analysis. Two cointegration tests have been applied: Engle-Granger test and ADL test. The existence of the long-run relationship between the price level in the EMU (expressed in Croatian Kuna) and the price level in the Republic of Croatia has been tested using monthly observations of average nominal Croatian Kuna exchange rate against Euro, Consumer Prices Index in the Republic of Croatia (2005=100) and the Harmonised Index of Consumer Prices for the European Monetary Union (2005=100) in the period from January 2000. to December 2012. Based on the Engle-Granger test, it can't be concluded if there is a long-run relationship between the two price levels. The non-existence of the long-run relationship between two price levels has also been confirmed by the ADL cointegration test. Thus, on the basis of the cointegration tests it can be concluded that the PPP hypothesis in the Republic of Croatia has not been confirmed.

Keywords: Purchasing power parity theory; Engle-Granger cointegration test; ADL cointegration test (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://utmsjoe.mk/files/Vol.%204%20No.%203/1-2B-Kozul_Ivan_-_Croatia.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:utmsje:0084

Access Statistics for this article

UTMS Journal of Economics is currently edited by Prof. Ace Milenkovski, PhD

More articles in UTMS Journal of Economics from University of Tourism and Management, Skopje, Macedonia Contact information at EDIRC.
Bibliographic data for series maintained by Assistant Professor. Dejan Nakovski, PhD ().