TESTING THE VALIDITY OF THE PPP HYPOTHESIS AND ITS EXTENSIONS FOR CROATIA PRIOR TO THE ADOPTION OF THE EURO
Romanian Journal of Economic Forecasting, cilt.29, sa.1, ss.171-181, 2026 (SSCI, Scopus)
- Yayın Türü: Makale / Tam Makale
- Cilt numarası: 29 Sayı: 1
- Basım Tarihi: 2026
- Dergi Adı: Romanian Journal of Economic Forecasting
- Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus, EconLit
- Sayfa Sayıları: ss.171-181
- Anahtar Kelimeler: Excessive Kurtosis, Fourier ADF Test, Fractional-Frequency Fourier ADF Test, Non-normal Errors, Purchasing Power Parity, RALS-ADF Test
- Çukurova Üniversitesi Adresli: Evet
Özet
The aim of this research is to assess the validity of purchasing power parity (PPP) hypothesis and its extensions for the Republic of Croatia prior to its adoption of the euro. To this end, the period from January 1994 to June 2022 is examined via testing for stochastic trend(s) utilising monthly data. Initially, the conventional augmented Dickey-Fuller (ADF) test equations are examined for the presence of structural breaks and non-normal errors. Following this procedure enables the study to make several important contributions. First, it broadens the residual augmented least squares (RALS)-based ADF testing procedure by utilising the fourth power of the error terms. Second, by examining nearly the entire kuna period, this research investigates the stability of the pre-euro Croatian currency, shedding light on Croatia's currency integration process into the Eurozone. Third, unlike other studies conducted for Croatia, this study not only assesses the formal PPP but also examines the validity of the extensions of the PPP hypothesis. The findings reveal that neither the formal PPP hypothesis nor its extensions are valid for Croatia and its trade partners, highlighting potential challenges in Croatia’s euro adoption and underscoring the need for strategic policy measures to facilitate a successful transition.