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Revisiting purchasing power parity for G7 countries: further evidence based on panel SURKSS tests

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  • Tsangyao Chang
  • Wen-Chi Liu
  • Chin-Ping Yu

Abstract

This study applies panel SURKSS tests, proposed by Wu and Lee (2009), to investigate the properties of long-run Purchasing Power Parity (PPP) in G7 countries over the period January 1980 to September 2008. The empirical results from several panel-based unit root tests indicate that PPP does not hold for G7 countries under study; however, panel SURKSS tests indicate that PPP is valid for more than half of the G7 countries. Further, our results point out that the real exchange rate adjustment is mean reversion towards PPP equilibrium values in a nonlinear way. These results have important policy implications for G7 countries.

Suggested Citation

  • Tsangyao Chang & Wen-Chi Liu & Chin-Ping Yu, 2010. "Revisiting purchasing power parity for G7 countries: further evidence based on panel SURKSS tests," Applied Economics Letters, Taylor & Francis Journals, vol. 17(14), pages 1383-1387.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:14:p:1383-1387
    DOI: 10.1080/13504850902967530
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    Citations

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    Cited by:

    1. Tsangyao Chang & Chia-hao Lee & Pei-I Chou, 2011. "Purchasing power parity in G-7 countries: Further evidence based on ADL test for threshold cointegration," Economics Bulletin, AccessEcon, vol. 31(2), pages 1172-1182.
    2. Aviral Tiwari & Niyati Bhanja & Arif Dar & Olaolu Olayeni, 2015. "Analyzing Time–Frequency Based Co-movement in Inflation: Evidence from G-7 Countries," Computational Economics, Springer;Society for Computational Economics, vol. 45(1), pages 91-109, January.
    3. Khandokar Istiak & Aviral Kumar Tiwari & Humaira Husain & Kazi Sohag, 2021. "The Spillover of Inflation among the G7 Countries," JRFM, MDPI, vol. 14(8), pages 1-20, August.
    4. Dimitriou, Dimitrios & Simos, Theodore, 2013. "Testing purchasing power parity for Japan and the US: A structural-break approach," Japan and the World Economy, Elsevier, vol. 28(C), pages 53-59.
    5. E. N. Gyamfi & E. F. Appiah, 2019. "Further evidence on the validity of purchasing power parity in selected African countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(2), pages 330-343, April.
    6. Chao-Hsiang Yang & Chi-Tai Lin & Yu-Sheng Kao, 2012. "Exploring stationarity and structural breaks in commodity prices by the panel data model," Applied Economics Letters, Taylor & Francis Journals, vol. 19(4), pages 353-361, March.
    7. Tsangyao Chang & Chi-Wei Su & Chia-Hao Lee, 2012. "Nonlinear adjustment to purchasing power parity with flexible Fourier function in G-7 countries," Applied Economics Letters, Taylor & Francis Journals, vol. 19(12), pages 1111-1116, August.
    8. A. Oznur Umit, 2016. "Stationarity of Real Exchange Rates in the ¡°Fragile Five¡±: Analysis with Structural Breaks," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(4), pages 254-270, April.

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