CES VŠEM o aktuálních ekonomických problémech

expected, 29 some of the NMS countries kept changing the official
level of exchange rates during the 1990s. All these factors turn
the estimations of exchange rate models into a challenging task.
1.6 Further methodological notes
There is no agreement among empirical economists which of the
expanding set of unit root tests is appropriate for testing PPP. If
the relative version of PPP is tested, it is verified that exchange
rate osciallates within a 'certain band' around '1'. That is the very
long-term level of an exchange rate in an economy if strict
assumptions of the PPP theory are satisfied:
where is a time series (e.g. an exchange rate), is an
autoregressive parameter and is the error term.
Due to difficulties with the time series that can be used and their
sensitivity to a large number of factors, 'standard' and non-linear
URTs are applied to our data. Additionally, pURTs are employed
too. If a unit root is not found, the next step can be done, which
is the calculation of half-lives. 30
Some studies have shown that unit root tests and cointegration
tests may have very low power if the number of observations ( )
is low (for an application associated with transition countries and
yearly data see e.g. Solakoglu, 2006. However, it may also be
argued that long time series may include (multiple) structural
breaks in the case of transition (developing) countries in
particular. 31 Additionally, using higher frequency data may not
(6)
29 The break-up of the former Soviet Union, the 1992–1993 ERM crisis in the EC
to mention at least the most important ones.
30 Half-life means a period of time necessary to halve the existing gap of one
(economic) variable. A decay rate and a decay constant is necessary to calculate
a half-life.
31 An example can be a change of a policy regime that is very likely in those
countries.
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