CES VŠEM o aktuálních ekonomických problémech

1.4 Estimation strategy
The relative version of the PPP theory in the equation (3.1) can
be tested by checking the properties of . If followed a nonstationary
process (e.g. I(1)), then the PPP would not hold in the
long run due to non-stationary properties. 26 On the other hand, if
a unit root is not present in a time series, it means that
a deviation from equilibrium is only of a temporary nature and
the PPP does hold in the long run.
As there are many potential factors influencing exchange rates,
pURTs are also applied to subgroups of the NMS countries
(NMS10, NMS8, and NMS5). The reason is that some countries
may be viewed as one group (block) by international investors
using the same rule for each of them. In addition, some criteria
are used to check robustness of our results. We make use of: 27
1. classification of exchange rates regimes (float or peg);
2. GDP growth rates;
3. inflation rates;
4. the impact of a country’s openness (trade flows);
5. volatility of nominal exchange rate and
6. progress in transition measured by reform indicator of
the EBRD. 28
26 A shock influencing this time series would lead to disequilibrium that would
not be restored due to increasing variance and non-existence of unconditional
mean of this time series, see Fan and Yao, 2003 or Tong, 1990.
27 Only distance is not included as there is no exact point which distances for
individual countries could be measured to (conversely, a country such as the
USA). For example, longer distances increase transport costs and thus the PPP
may not hold.
28 The reason for the inclusion of the last proxy seems to be obvious – different
stages of economic development result in having exchange rate regime that are
'suitable' for a particular country. It is also shown in the figure 1, see above. This
set of criteria should offer wide range of possibilities that classifies countries
according one of them, which may be arbitrary.
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