Purchasing power parity in Central and Eastern European countries: an analysis of unit roots and nonlinearities

The aim of this article is to analyse the empirical fulfilment of purchasing power parity (PPP) in a number of Central and Eastern European countries. For this purpose we apply two different unit root tests in order to control for two sources of nonlinearities, i.e. Bierens (1997) and Kapetanios et al. (2003). We find that PPP holds in most of these countries once account has been taken of nonlinear deterministic trends and smooth transitions.