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Purchasing Power Parity in a Transition Country: The Case of Croatia

Author

Listed:
  • Marina Tkalec

    (Institute of Economics, Trg J.F. Kennedya 7, Zagreb 10000, Croatia. E-mails: mtkalec@eizg.hr; mvizek@eizg.hr;)

  • Maruška Vizek

    (Institute of Economics, Trg J.F. Kennedya 7, Zagreb 10000, Croatia. E-mails: mtkalec@eizg.hr; mvizek@eizg.hr;)

Abstract

We explore the validity of the purchasing power parity (PPP) hypothesis in the case of Croatia. Two cointegration methods were used: Johansen cointegration that assumes symmetry and threshold cointegration that allows for asymmetric adjustment in the short run. The results suggest that in the long run the absolute power parity condition holds, that is, that the exchange rate is aligned with the fundamentals and no depreciation is needed. The error correction model does not confirm the existence of exchange rate pass-through to domestic consumer prices. Threshold cointegration results suggest that the adjustment of deviations from PPP is not asymmetric.

Suggested Citation

  • Marina Tkalec & Maruška Vizek, 2011. "Purchasing Power Parity in a Transition Country: The Case of Croatia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 53(2), pages 223-238, June.
    • Handle: RePEc:pal:compes:v:53:y:2011:i:2:p:223-238
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    Cited by:

    1. Ilir Miteza, 2012. "The Law of One Price in Six Central and Eastern European Economies," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 54(3), pages 581-596, September.
    2. Marina Tkalec & Maruska Vizek, 2014. "Real estate boom and export performance bust in Croatia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 32(1), pages 11-34.

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