Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 202: Real Exchange Rate Adjustment In European Transition Countries

Florin G. Maican () and Richard J. Sweeney ()
Additional contact information
Florin G. Maican: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG
Richard J. Sweeney: McDonough School of Business, Georgetown University, Postal: 37th and "O" Sts., NW, Washington, DC 20057

Abstract: This paper presents unit-root test results for real exchange rates in ten Central and Eastern European transition countries during 1993:01-2003:12. Because of the shift from controlled to market economies and the accompanying crises, failed policy regimes and changes in exchange rate regimes, appropriate tests in transition countries require allowing for both structural changes and outliers. In both single-equation tests and panel tests with SUR techniques, the data reject the unit-root null for the CEE countries. Accounting for structural breaks and outliers gives much faster mean-reversion speeds than otherwise.

Keywords: Purchasing power parity; real exchange rate; Monte Carlo; unit root; transition countries; panel data

JEL-codes: C15; C22; C32; C33; E31; F31

30 pages, February 14, 2006

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