Nonlinear adjustment to purchasing power parity in G-7 countries

Tsangyao Chang, Chia-Hao Lee and Pei-I Chou

Applied Economics Letters, 2012, vol. 19, issue 2, 123-128

Abstract: This study applies a simple and powerful nonlinear unit root proposed by Sollis (2009) to test the validity of long-run Purchasing Power Parity (PPP) in G-7 countries over the period January 1980 to September 2008. The empirical results indicate that PPP holds true for all G-7 countries, with the exception of Canada, and the adjustment towards PPP is nonlinear but in a symmetric way. These results have important policy implications for the G-7 countries under study.

Date: 2012
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DOI: 10.1080/13504851.2011.568389

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