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

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  • Tsangyao Chang
  • Hsu-Ling Chang
  • Ken Hung
  • Chi-Wei Su

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.

Suggested Citation

  • Tsangyao Chang & Hsu-Ling Chang & Ken Hung & Chi-Wei Su, 2012. "Nonlinear adjustment to purchasing power parity for Germany's real exchange rate relative to its major trading partners," Applied Economics Letters, Taylor & Francis Journals, vol. 19(2), pages 197-202, February.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:2:p:197-202
    DOI: 10.1080/13504851.2011.570708
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    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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