A new asymmetric unit root test with smooth transition and it's application

Unit root tests literature which began with Dickey and Fuller's 1979 study persists to develop rapidly. This development is made possible with the corrections of deficiencies which are seen in previously developed unit root tests by various methods. In this study, new unit root test was developed with the addition of asymmetry features to unit root tests which are devoloped by Leybourne, Newbold and Vougas and Harvey and Mills. The Purchasing Power Parity (PPP) hypothesis is a frequently studied subject in the economics and econometrics literature. In particular, PPP's analysis can be made easily with the unit root tests so that this allows the subject to become more involved in econometrics literature. In this study, the validity of the PPP hypothesis in E7 countries has been tested with LNV and HM unit root tests and with asymmetric unit root tests with smooth transitions developed in this study. According to the unit root tests results, the PPP hypothesis is not valid in E7 countries during the relevant period.