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Hur väl har euron anpassat sig till PPP jämnvikten sedan införandet?

Winchester, Oliver LU and Sammarco, Lucas LU (2021) NEKH02 20202
Department of Economics
Abstract
The purpose of this paper is to examine whether the real imbalances that have arisen in the economy since the introduction of the euro are improving over time. By using panel data to test for a unit root in and measuring the half-life of eleven euro countries’ real exchange rates under different exchange rate systems from 1957 to 2019, we can investigate how the euro has affected the deviations from the PPP equilibrium. The results of the tests show that there are major discrepancies in the PPP for the euro-zone countries after the introduction of the euro versus before the introduction, which indicates that the euro has still not been able to adapt. We also note that for the countries in the control group, consisting of four countries... (More)
The purpose of this paper is to examine whether the real imbalances that have arisen in the economy since the introduction of the euro are improving over time. By using panel data to test for a unit root in and measuring the half-life of eleven euro countries’ real exchange rates under different exchange rate systems from 1957 to 2019, we can investigate how the euro has affected the deviations from the PPP equilibrium. The results of the tests show that there are major discrepancies in the PPP for the euro-zone countries after the introduction of the euro versus before the introduction, which indicates that the euro has still not been able to adapt. We also note that for the countries in the control group, consisting of four countries that chose not to adopt the euro, the PPP still holds. This indicates that the world economy has not changed, but it is instead a change in the exchange rate system that explains the result. Moreover, by looking more closely at the sub-components of the real exchange rate, ie. the nominal exchange rate and the relative price level, we find that flexibility in the nominal exchange rate is crucial for the real exchange rate to be able to adapt to the PPP equilibrium. (Less)
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author
Winchester, Oliver LU and Sammarco, Lucas LU
supervisor
organization
course
NEKH02 20202
year
type
M2 - Bachelor Degree
subject
keywords
EMU, purchasing power parity, nominal exchange rate regime, panel unit root test
language
Swedish
id
9037970
date added to LUP
2021-03-11 11:57:36
date last changed
2021-03-11 11:57:36
@misc{9037970,
  abstract     = {{The purpose of this paper is to examine whether the real imbalances that have arisen in the economy since the introduction of the euro are improving over time. By using panel data to test for a unit root in and measuring the half-life of eleven euro countries’ real exchange rates under different exchange rate systems from 1957 to 2019, we can investigate how the euro has affected the deviations from the PPP equilibrium. The results of the tests show that there are major discrepancies in the PPP for the euro-zone countries after the introduction of the euro versus before the introduction, which indicates that the euro has still not been able to adapt. We also note that for the countries in the control group, consisting of four countries that chose not to adopt the euro, the PPP still holds. This indicates that the world economy has not changed, but it is instead a change in the exchange rate system that explains the result. Moreover, by looking more closely at the sub-components of the real exchange rate, ie. the nominal exchange rate and the relative price level, we find that flexibility in the nominal exchange rate is crucial for the real exchange rate to be able to adapt to the PPP equilibrium.}},
  author       = {{Winchester, Oliver and Sammarco, Lucas}},
  language     = {{swe}},
  note         = {{Student Paper}},
  title        = {{Hur väl har euron anpassat sig till PPP jämnvikten sedan införandet?}},
  year         = {{2021}},
}