Deviation from purchasing power parity in Albania

• Author: Ilira Pulaj
• Position: University 'Ismail Qemali' of Vlora, Albania
• Pages: 95-102

Vo

l. 4 N

o

. 2

Jul

y

, 201

8

ISS

N 2410-391

8

A

cces on

l

ine at www.ii

p

cc

l

.or

g

95

A

cademic Journal o

f

Business,

A

dministration, Law and Social Sciences

II

PCCL Publishin

g

, Graz-

A

ustria

D

eviation from purchasing power parit

y

in Albani

a

M

Sc. Ilira Pula

j

U

niversity “

I

smail Qemali” o

f

Vlora,

A

lbania

Ab

str

a

ct

I

n this study we test the validity of purchasing power parity for

A

lbania in comparison to

the

E

uro-Zone using quarterly data for a period from 2002-2013.

A

s in many similar empirical

s

tudies conducted for countries under economic transition, deviations from the PPP in the

s

hort run are very likely.

U

sing unit root test approach and Johansen cointegration tests, result

that the validity of purchasing power parity does not hold in the short run when comparing

these economies. This result might be a



ected by the existing structural di



erences between

these economies and di erences in terms of trade pa ern.

Ke

y

words: Purchasing Power Parity;

E

xchange Rate; V

E

CM; Firms;

A

lbania

.

I

ntr

oduc

t

ion

Man

y

articles have studied the theor

y

o

f

PP

P



1

eit

h

er in t

h

e s

h

ort term or

l

ong

term. These studies are carried out in both develo

p

ing countries and economies in

transition and also in develo

p

ed countries. The stud

y

o

f

this h

yp

othesis is o

f

great

i

m

p

ortance

f

or

p

olitical decision making, Central Bank

p

olic

y

makers or even

f

or

man

y

international

f‌i

rms and

f

or

p

artici

p

ants in the exchange rate market. The theor

y

i

s based on the

f

act that there is a

p

ro

p

ortional relationshi

p

between the

p

rice o

f

a

p

roduct or o

f

a re

p

resentative basket o

f

goods in a currenc

y

relativel

y

to one another

c

urrenc

y

ex

p

ressed in the same amount o

f

mone

y

recalculated in the same currenc

y

.

Results are di



erent considering the di



erences in em

p

irical methods a

pp

lied, the

b

asics and the

p

eriod o

f

data taken into consideration or other

f

actors like obstacles

i

n the international market, transaction costs,

p

rice index com

p

osition etc. Di



erent

researchers have examined this h

yp

othesis in a s

p

eci

f‌i

c case b

y

taking a countr

y

u

nder stud

y

, and others have carried out studies in data

p

anel

f

or a grou

p

o

f

states.

I

n general researchers have agreed to the

f

act that deviations

f

rom PPP o

f

the real

e

xc

h

ange rate in t

h

e s

h

ort run is consi

d

era

bl

e an

d

varia

bl

e w

h

i

l

e in t

h

e

l

ong term,

i

t converges to the ex

p

ected level o

f

PPP. However, some studies have rejected the

P

PP h

yp

othesis. This

p

a

p

er

p

resents a surve

y

o

f

PPP

f

or a countr

y

in transition like

A

lbania, based on a

p

eriod o

f

data

f

rom 2002 to 2013.

I

n section two is

p

resented a

review o

f

the works that are carried around this theor

y

. The third section gives a

statement o

f

the model that is used

f

or the anal

y

sis o

f

this h

yp

othesis. The

f

ourth

section

p

resents

d

ata to

b

e use

d

by

, an

d

t

h

en t

h

e resu

l

ts

.

L

i

t

e

r

a

t

u

r

e

R

e

v

iew

Man

y

studies in di



erent countries have been dealing with the anal

y

sis o

f

the theor

y

1

Purc

h

asing Power Parit

y.