Purchasing power parity (PPP) in developed countries: updated evidence from multivariate ARDL unit root test

Soo Khoon Goh (), Yanru Yu (), Chung Yan Sam () and Tuck Cheong Tang ()
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Soo Khoon Goh: Centre for Policy Research, Universiti Sains Malaysia
Yanru Yu: Centre for Policy Research, Universiti Sains Malaysia
Chung Yan Sam: Centre for Policy Research, Universiti Sains Malaysia

Economics Bulletin, 2025, vol. 45, issue 2, 1074 - 1082

Abstract: This study re-examines the purchasing power parity (PPP) hypothesis for six developed countries, addressing the inconsistent evidence in the existing empirical literature. By applying a newly developed multiple autoregressive distributed lag (MARDL) unit root test, this study updates that both real and real effective exchange rates of the UK, Canada, Australia, Japan, Switzerland, and New Zealand (with the US as a covariate) are non-stationary, I(1) for 2000m1-2023m12, suggesting that the PPP does not hold.

Keywords: Covariate; Multivariate ARDL; Purchasing Power Parity (PPP); Unit root test (search for similar items in EconPapers)
JEL-codes: C2 H3 (search for similar items in EconPapers)
Date: 2025-06-30
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