Purchasing power parity hypothesis: New empirical evidence from nonlinear panel unit root tests

The purpose of this thesis is to provide a comprehensive analysis of the Purchasing Power Parity (PPP) hypothesis by re-examining its validity for a group of Organization for Economic Co-operation and Development (OECD) countries. To this end, we tested this theory by using a battery of unit root tests by using monthly data for the period 1990 to 2013. The unit root tests implemented in this study includes not only the conventional univariate and panel unit root tests but also their nonlinear counterparts. However, all results in general emphasize that the PPP hypothesis does not hold for the OECD countries included in this study. While the PPP hypothesis founds most support when the linear panel unit root tests are implemented, strong unfavorable evidence exists by using the linear univariate unit root tests. The results of the nonlinear unit root tests seem also promising. Thus, the validity of the PPP hypothesis still remains an unsolved question.