Saadet Kasman

Testing the Purchasing Power Parity Hypothesis for the New Member and Candidate Countries of the European Union: Evidence from Lagrange Multiplier Unit Root Tests with Structural Breaks

This paper investigates the validity of purchasing power parity (PPP) for the eleven Central and East European transition countries and three market economy countries, Cyprus, Malta, and Turkey. Unlike previous studies on PPP, this study uses Lagrange multiplier (LM) unit root tests that incorporate structural breaks in the data series. The findings indicate that in cases of one and two structural breaks, for a U.S. dollar-based real exchange rate series, there is little evidence supporting the validity of PPP. For a deutsche mark-based real exchange rate series, for the cases of both one and two breaks, there is evidence of stationarity of real exchange rates for eight sample countries, which is consistent with PPP. The results also indicate that the estimated half-life of a shock to the real exchange rate ranges from 1.25 (15.05 months) to 2.72 (32.72 months) years across countries. The empirical findings may provide direction for policy makers to coordinate monetary policies for the process of European monetary integration.

Fisher Hypothesis Revisited: A Fractional Cointegration Analysis

This paper investigates the validity of the Fisher hypothesis using data from thirtythree developed and developing countries. Conventional cointegration tests do not provide strong evidence for a relation between nominal interest rates and inflation. Therefore, we use fractional cointegration analysis to test the long-run relationship between the two variables. The results indicate that a long-run relation between nominal interest rates and inflation does not appear for most countries in the sample when the conventional cointegration test is employed. However, fractional cointegration between the two variables is found for a large majority of countries, implying the validity of the Fisher hypothesis. The results also indicate that the equilibrium errors display long memory.

Long memory in stock returns: evidence from the major emerging Central European stock markets

This article analyses the long-memory properties of the daily stock market returns of four major emerging Central European countries, the Czech Republic, Hungary, Poland and the Slovak Republic. We use the semi-parametric method of Geweke and Porter-Hudak (1983) and parametric method of Sowell (1992). The results indicate a significant long memory in the return series of the Slovak Republic. The evidence of long memory in Hungary and the Czech Republic is, however weak. Poland is the only market exhibiting short memory. Since long-memory property is inconsistent with the market efficiency, there is still room for the investors to receive unexploited profits in the stock market of the Slovak Republic.

Total factor productivity and convergence: evidence from old and new EU member countries’ banking sectors

This paper examines whether there has been convergence of total factor productivity levels across twenty-two EU member and three candidate countries following the process of legislative harmonization. The results indicate evidence of β-convergence and σ-convergence in productivity across sampled countries. The results further indicate that all sampled banking sectors seem to have experienced a significant productivity growth over the sample period. The productivity growth levels range from 3.1% to 15.6% and 6.8% to 19.5% in the old member and new member states, respectively. The geometric means considering all banking firms in the new member and candidate countries together reveal that banking sectors in these countries were more productive than those of in the old EU member countries. Overall, the evidence indicates that promoting merger and acquisition activities in the banking system (and hence supporting market driven consolidation of smaller banks) and enhancing the presence of foreign banks could increase competition and productivity in these banking systems.