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Iuliana Matei
''Testing for price convergence: how close are EU New Member's States to euro zone?''
( 2009, Vol. 29 No.4 )
The purpose of my paper is to empirically explore the validity of the relative version of purchasing power parity (PPP) for nine EU New Member States (NMS) using unit root and panel unit root frameworks. Three periods are considered: the period before NMS joined the EU (1995:01-2004:04), the period after NMS joined the EU (2004:05-2008:12), and the sum of the two periods (1995-2008). We find evidence that real exchange rates follow generally unit-root processes implying that PPP doesn't hold even as a long-run relationship. In addition, results show that price co-movements increase strongly after NMS joined the EU.
Keywords: Purchasing power parity, inflation convergence, developing countries, panel unit-root, time series unit roots, EU
JEL: E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Manuscript Received : Mar 25 2009 Manuscript Accepted : Dec 11 2009

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