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Purchasing Power Parity Influence On Real Exchange Rate Behavior In Romania

Author

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  • Nicolae Ghiba

    (Alexandru Ioan Cuza University of Iasi)

Abstract

Purchasing Power Parity (PPP) represents a fundamental concept in exchange rate modeling. The main idea is given by equality between prices in two different countries when expressing in the same currency. This paper aims to analyze the behavior of real exchange rate between EURO and Romanian new leu (RON) under PPP paradigm. We use the Augmented Dickey-Fuller and Phillips-Perron stationarity tests in order to check real exchange deviations from PPP. Also, we investigate the existence of a connection between long-term between nominal exchange rate and industrial producer price indices from Romania and euro area. The main conclusions of this research highlight that PPP doesn’t holds; real exchange rate stationarity tests doest not confirm the stationarity, thus between the aforementioned three variables it doesn’t exists any equilibrium relation.

Suggested Citation

  • Nicolae Ghiba, 2011. "Purchasing Power Parity Influence On Real Exchange Rate Behavior In Romania," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 3(4), pages 524-536, December.
    • Handle: RePEc:jes:wpaper:y:2011:v:3:i:4:p:524-536
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    References listed on IDEAS

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    More about this item

    Keywords

    purchasing power parity; real exchange rate; stationarity; cointegration Romania;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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