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Revisiting purchasing power parity for G-7 countries using nonparametric rank test for cointegration

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  • Tsangyao Chang
  • Kuei-Chiu Lee
  • Yang-Cheng Ralph Lu
  • Guochen Pan

Abstract

This study applies the nonparametric rank test for cointegration, proposed by Breitung (2001), to test the validity of long-run Purchasing Power Parity (PPP) for G-7 countries over the period of January 1980 to January 2009. The empirical results indicate that PPP holds true for all G-7 countries studied and that the nominal exchange rate and the domestic and US Consumer Price Index (CPI) are nonlinearly interrelated with the exception of France and Germany cases. Our results have important policy implications for the G-7 countries under study.

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  • Tsangyao Chang & Kuei-Chiu Lee & Yang-Cheng Ralph Lu & Guochen Pan, 2011. "Revisiting purchasing power parity for G-7 countries using nonparametric rank test for cointegration," Applied Economics Letters, Taylor & Francis Journals, vol. 18(18), pages 1795-1800, December.
  • Handle: RePEc:taf:apeclt:v:18:y:2011:i:18:p:1795-1800
    DOI: 10.1080/13504851.2011.564120
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    Cited by:

    1. Works, Richard Floyd, 2016. "Econometric modeling of exchange rate determinants by market classification: An empirical analysis of Japan and South Korea using the sticky-price monetary theory," MPRA Paper 76382, University Library of Munich, Germany.

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