Purchasing Power Parity in the 34 OECD Countries: Evidence from Quantile-Based Unit Root Tests with both Smooth and Sharp Breaks

BAHMANI-OSKOOEE, Mohsen and Wu, Tsung-Pao (2017): Purchasing Power Parity in the 34 OECD Countries: Evidence from Quantile-Based Unit Root Tests with both Smooth and Sharp Breaks.

Abstract

Conventional unit root tests have mostly failed to validate the PPP. Quantile-based unit root test by previous research have provided some support for the PPP. In this paper we take an additional step and incorporate sharp shifts and smooth breaks into the quantile-based unit root test and re-examine the PPP in each of the 34 OECD countries over the period 1994M01 to 2016M03. We find support for the PPP in 18 countries of Austria, Chile, Estonia, Finland, France, Germany, Italy, Korea, Mexico, Netherlands, New Zealand, Poland, Portugal, Slovenia, Sweden, Switzerland, Turkey, and the United Kingdom.

• Item Type: MPRA Paper
• Language: English
• Keywords: Purchasing Power Parity; OECD Countries; Quantile Unit Root Test; Sharp Shifts; Smooth breaks.
• Subjects: F - International Economics > F3 - International Finance; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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