The Purchasing Power Parity suggests that differences in relative prices in two countries move together with nominal exchange rates in the long run. This study examines the validity of PPP as transition economies for Commonwealth of Independent States (CIS). Purchasing Power Parity holds only when the real exchange rate is stationary in the equation. To test the stationary, we used both time series and panel data analysis. Testing unit root both with time series and panel data in this study, provides us double check of the results. We also test the cross sectional dependence to choose the appropriate panel unit root test. Our test statistics indicate that there is cross section dependence between countries. Hence, one needs to take into consideration the cross section dependence while undertaking unit root tests. Otherwise, the results would be biased. ADF and KPPS indicate that PPP cannot be accepted for the countries except for Russia. According to the panel unit root test results indicate that PPP does not hold for Armenia, Belarus, Georgia, Kazakhstan and Kyrgyzstan except for Russia.
Absolute Purchasing Power Parity in African Low-income Countries: A Panel Data Analysis
