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

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.