THE PURCHASING POWER PARITY HYPOTHESIS TESTED -ONCE AGAIN-. NEW EMPIRICAL EVIDENCE FOR 28 OECD COUNTRIES

Abstract

The present study is aimed to examine the validity of the purchasing power parity hypothesis for 28 OECD countries over the 1960q1-2021q4 period. To reach this goal, we apply three methods to evaluate whether the real exchange rates are stationary: the traditional unit root tests in time series, the panel unit root tests, and nonlinear unit root tests based on OLS and GLS detrending. The findings suggest that the purchasing power parity hypothesis does not hold even if the assessment considers nonlinear adjustment.