6th International Thematic Monograph – Modern Management Tools and Economy of Tourism Sector in Present Era

Purchasing Power Parity under Tourism Price Indices: An Analysis for Euro Area
​
Jani Bekő  –    Faculty of Economics and Business, University of Maribor, Razlagova 14, 2000 Maribor, Slovenia
Darja Boršič –   Faculty of Economics and Business, University of Maribor, Razlagova 14, 2000 Maribor, Slovenia
​​
DOI:   https://doi.org/10.31410/tmt.2021-2022.109
​​​

Abstract:  This chapter examines the relevance of PPP for a panel of 19 Eurozone economies. The research produces four novelties. First, instead of employing general price indices as a standard proxy for price variables in the PPP model, it uses two disaggregated tourism price indicators: consumer price indices for catering services and consumer price indices for accommo­dation services. Second, it scrutinizes the PPP thesis with respect to the euro and the US dollar. Third, in order to check the stationary properties of real exchange rates, the study adopts a battery of panel unit root tests. Fourth, the mean reversion process in real exchange rates is tested on a new data set covering the period from January 2001 to September 2021. The empirical results are strongly within the spirit of PPP; they are robust to the selection of time intervals, applied unit root tests, chosen base currencies and tour­ism price indices. 

Keywords:   Panel unit root tests; Tourism sector; Consumer price indices for catering; Consumer price indices for accommodation

​REFERENCES
​Abioglu, V., & Hasanov, M. (2021). Empirical investigation of long run PPP hypothesis: the case of temporary structural break and asymmetric adjustment. International Journal of Economic Sciences, 10(1), 1-19. https://dx.doi.org/10.52950/ES.2021.10.1.001 Bekő, J., & Boršič, D. (2018). Testing the purchasing power parity hypothesis: case of ASEAN economies. Naše Gospodarstvo/Our Economy, 64(4), 74-85. https://doi.org/10.2478/ngoe-2018-0024 Bekő, J., & Boršič, D. (2020). Are the Mediterranean countries with tourism price indices in the purchasing power parity zone?. In: Bevanda, V., Štetić, S. (Ed.), Modern management tools and economy of tourism sector in present era: 5th international thematic monograph. Belgrade: Association of Economists and Managers of the Balkans; Ohrid: Faculty of Tourism and Hospitality. Bergin, P. R., Glick, R., & Wu, J. L. (2017). “Conditional PPP” and real exchange rate convergence in the euro area. Journal of International Money and Finance, 73(May), 78-92. https://dx.doi.org/10.1016/j.jimonfin.2017.02.005 Breitung, J. (2000). The local power of some unit root tests for panel data. In B. Baltagi (Ed.), Advances in Econometrics, Vol. 15: Nonstationary Panels, Panel Cointegration, and Dynamic Panels (pp. 161-178), Amsterdam: JAI Press. https://doi.org/10.1016/S0731-9053(00)15006-6
Choi, I. (2001). Unit root tests for panel data. Journal for International Money and Finance, 20(2), 249-272. https://doi.org/10.1016/S0261-5606(00)00048-6 Christidou, M., & Panagiotidis, T. (2010). Purchasing power parity and the European single currency: some new evidence. Economic Modelling, 27(5), 1116-1123. https://doi.org/10.1016/j.econmod.2010.03.008 Drissi, R., & Boukhatem, J. (2020). A nonlinear adjustment in real exchange rates under transaction costs hypothesis in developed and emerging countries. Quantitative Finance and Economics, 4(2), 220-235. https://doi.org/10.3934/QFE.2020010 Emirmahmutoglu, F., & Omay, T. (2014). Reexamining of PPP hypothesis: a nonlinear asymmetric heterogeneous panel unit root test. Economic Modelling, 40(June), 184-190. https://doi.org/10.1016/j.econmod.2014.03.028 Eurostat. (2021). Eurostat database. Retrieved October 20, 2021, from https://ec.europa.eu/eurostat/data/database Froot, K. A., & Rogoff, K. (1995). Perspectives on PPP and long-run real exchange rates. In G. Grossman & K. Rogoff (Ed.), Handbook of International Economics Vol. III, (pp. 1647-1688). Elsevier Science. https://doi.org/10.1016/S1573-4404(05)80012-7 Gavurova, B., Belas, J., Valaskova, K., Rigelsky, M., & Ivankova, V. (2021). Relations between infrastructure innovations and tourism spending in developed countries: a macroeconomic perspective. Technological and Economic Development of Economy, 27(5), 1072-1094. http://doi.org/10.3846/tede.2021.15361 Giannellis, N., & Papadopoulos, A. P. (2010). Nonlinear exchange rate adjustment in the enlarged Eurozone: evidence and implications for candidate countries. Review of International Economics, 18(4), 741-757. https://doi.org/10.1111/j.1467-9396.2010.00895.x Huang, C. H., & Yang, C. Y. (2015). European exchange rate regimes and purchasing power parity: an empirical study on eleven Eurozone countries. International Review of Economics and Finance, 35(January), 100-109. https://doi.org/10.1016/j.iref.2014.09.008 Hurlin, C. (2010). What would Nelson and Plosser find had they used panel unit root tests? Applied Economics, 42(12), 1515-1531. https://doi.org/10.1080/00036840701721539 Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74. https://doi.org/10.1016/S0304-4076(03)00092-7 International Monetary Fund. (2021). International financial statistics. Retrieved October 20, 2021, From https://data.imf.org/?sk=4c514d48-b6ba-49ed-8ab9-52b0c1a0179b&sId =1390030341854 Kavkler, A., Boršič, D., & Bekő, J. (2016). Is the PPP valid for the AE-11 countries? New evidence from nonlinear unit toot tests. Economic Research, 29(1), 612-622. https://dx.doi.org/10.1080/1331677X.2016.1189842 Koedijk, K. G., Tims, B., & van Dijk, M. A. (2004). Purchasing power parity and the euro area. Journal of International Money and Finance, 23(7-8), 1081-1107. https://doi.org/10.1016/j.jimonfin.2004.08.005 Levin, A., Lin, C. F., & Chu, C. (2002). Unit root testing in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7 Lopez, C., & Papell, D. H. (2007). Convergence to purchasing power parity at the commencement of the euro. Review of International Economics, 15(1), 1-16. https://doi.org/10.1111/j.1467-9396.2007.00631.x Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel and a new simple test. Oxford Bulletin of Economics and Statistics, 61(0), 631-653. https://doi.org/10.1111/1468-0084.0610s1631
 Macedoni, L. (2021). Has the euro shrunk the band? Relative purchasing power parity convergence in a currency union. Scandinavian Journal of Economics, 123(2), 593-620. https://doi.org/10.1111/sjoe.12417 Parikh, A., & Wakerly, E. (2000). Real exchange rates and unit root tests. Weltwirtschaftliches Archiv, 136(3), 478-490. https://doi.org/10.1007/BF02707290 Ogrokhina, O. (2019). Persistence of prices in the Eurozone capital cities: evidence from the Economist Intelligence Unit City Data. Economic Modelling, 76(January), 330-338. http://doi.org/10.1016/j.econmod.2018.09.005 Pascariu, G. C., & Ibănescu, B. C. (2018). Determinants and implications of the tourism multiplier effect in EU economies. Towards a core-periphery pattern? Amfiteatru Economic, 20(12), 982- 997. http://doi.org/10.24818/EA/2018/S12/982 Rabe, C., & Waddle, A. (2020). The evolution of purchasing power parity. Journal of International Money and Finance, 109(December), 1-21. https://doi.org/10.1016/j.jimonfin.2020.102237 Statista. (2021). Statista database. Retrieved December 17, 2021, from https://www.statista.com/statistics/1228395/travel-and-tourism-share-of-gdp-in-the-eu-by-country/ Su, J. J., Cheung, A., & Roca, E. (2014). Does purchasing power parity hold? New evidence from wild-bootstrapped nonlinear unit root tests in the presence of heteroskedasticity. Economic Modelling, 36(January), 161-171. https://doi.org/10.1016/j.econmod.2013.09.029 Taylor, M. P. (2006). Real exchange rates and purchasing power parity: mean-reversion in economic thought. Applied Financial Economics, 16(1-2), 1-17. https://doi.org/10.1080/09603100500390067 Taylor, A. M., & Taylor, M. P. (2004). The purchasing power parity debate. The Journal of Economic Perspectives, 18(4), 135-158. https://doi.org/10.1257/0895330042632744 The World Bank. (2021). The World Bank database. Retrieved December 17, 2021, from https://databank.worldbank.org/source/world-development-indicators# Tubadji, A., & Nijkamp, P. (2018). Revisiting the Balassa-Samuelson effect: international tourism and cultural proximity. Tourism Economics, 24(8), 915-944. https://doi.org/10.1177/1354816618781468 U.S. Bureau of Labor Statistics. (2021). Consumer price index (CPI) databases. Retrieved October 20, 2021, from https://www.bls.gov/cpi/data.htm Zhou, S., Bahmani-Oskooee, M., & Kutan, A. M. (2008). Purchasing power parity before and after the adoption of the euro. Review of World Economics, 144(1), 134-150. https://doi.org/10.1007/s10290-008-0140-5 Zhou, S., & Kutan, A. M. (2011). Is the evidence for PPP reliable? A sustainability examination of the stationarity of real exchange rates. Journal of Banking & Finance, 35(9), 2479-2490. https://doi.org/10.1016/j.jbankfin.2011.02.006 Vo, L. H., & Vo, D. H. (2020). Long-run dynamics of exchange rates: a multi-frequency investigation. North American Journal of Economics and Finance, 54(November), 1-17. https://doi.org/10.1016/j.najef.2019.101125 Wu, Y., & Lin, E. S. (2011). Does purchasing power parity hold following the launch of the euro? Evidence from the panel unit root test. Applied Economics Letters, 18(2), 167-172. https://doi.org/10.1080/13504850903442970 Xie, Z. X., Chen, S. W., & Hsieh, C. K. (2021). Facing up to the polysemy of the purchasing power parity: new international evidence. Economic Modelling, 98(May), 247-265. https://doi.org/10.1016/j.econmod.2021.02.019