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Purchasing Power Parity in the Transition: The Case of the Romanian Leu Against the Dollar

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  • David Barlow
  • Roxana Radulescu

Abstract

This article uses co-integration analysis to test purchasing power parity for the Romanian leu against the US dollar. The fact that the purchasing power parity (PPP) hypothesis is not rejected leads to the conclusion that the real appreciation of the leu against the dollar over the transition has not been due to an appreciation of the equilibrium real exchange rate. Rather it is simply the consequence of the leu being devalued beyond the equilibrium level at the start of reform and slowly returning to its constant equilibrium real rate. There is evidence that the adjustment to equilibrium has fallen almost entirely on the price level, so that a major consequence of the excessive undervaluation has been higher inflation.

Suggested Citation

  • David Barlow & Roxana Radulescu, 2002. "Purchasing Power Parity in the Transition: The Case of the Romanian Leu Against the Dollar," Post-Communist Economies, Taylor & Francis Journals, vol. 14(1), pages 123-135.
    • Handle: RePEc:taf:pocoec:v:14:y:2002:i:1:p:123-135
    DOI: 10.1080/14631370120116725
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    Cited by:

    1. David Barlow, 2004. "Purchasing Power Parity in Three Transition Economies," Economic Change and Restructuring, Springer, vol. 36(3), pages 201-221, September.
    2. David Barlow, 2003. "Purchasing Power Parity in Three Transition Economies," Economic Change and Restructuring, Springer, vol. 36(3), pages 201-221, September.
    3. Kemme, David M. & Roy, Saktinil, 2006. "Real exchange rate misalignment: Prelude to crisis?," Economic Systems, Elsevier, vol. 30(3), pages 207-230, October.
    4. Andreea-Daniela GANGONE & Mariana-Cristina GANESCU & Mihaela ASANDEI, 2018. "An Analysis Of The Effect Of Purchasing Power Parity On National Competitiveness And Human Development In 21 European Countries," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 3(1), pages 152-165.
    5. Oguz OCAL, 2013. "Purchasing Power Parity in the Case of Romania: Evidence from Structural Breaks," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 973-976.
    6. Seher Suluk & Kemaletttin Tanr seven, 2018. "Purchasing Power Parity in the Euro Area: Evidence from Structural Break LM Test," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 370-375.
    7. Zeynel Abidin Ozdemir & Emre Aksoy, 2015. "Are real exchanges rate series really persistent?: evidence from three commonwealth of independent states countries," Applied Economics, Taylor & Francis Journals, vol. 47(40), pages 4299-4309, August.

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