Nonlinear adjustment to purchasing power parity for Germany's real exchange rate relative to its major trading partners

Tsangyao Chang, Hsu-Ling Chang, Ken Hung and Chi-Wei Su

Applied Economics Letters, 2012, vol. 19, issue 2, 197-202

Abstract: This study applies a simple and powerful nonlinear unit-root test proposed by Sollis (2009) to test the validity of long-run Purchasing Power Parity (PPP) for Germany's real exchange rate vis-à-vis its trading partner countries. The empirical results indicate that PPP holds for Germany relative to its major trading partners, with the exception of Canada, and the adjustment towards PPP is nonlinear and asymmetric. This result provides support for PPP for Germany relative to its major trading partner countries.

Date: 2012
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DOI: 10.1080/13504851.2011.570708

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