Testing Purchasing Power Parity for the New EU Members and Turkey : Panel Cointegration Analysis with Disaggregated CPI

Abstract

This study applies multivariate panel cointegration technique to evaluate PPP hypothesis by using consumer price sub-indices of new EU member transition economies and Turkey. We aim not only to compare parameter estimates across the sectors of an economy but also across the economies at different EU transition stages. We find that failure to get evidence for cointegration to support PPP can be attributed to the inclusion of non-tradable goods in the aggregated data, as well as to the extent of trade relationship.Purchasing Power Parity, Panel cointegration, European Union, Transition economies, Turkey