Revisiting purchasing power parity for G7 countries: further evidence based on panel SURKSS tests

This study applies panel SURKSS tests, proposed by Wu and Lee (2009), to investigate the properties of long-run Purchasing Power Parity (PPP) in G7 countries over the period January 1980 to September 2008. The empirical results from several panel-based unit root tests indicate that PPP does not hold for G7 countries under study; however, panel SURKSS tests indicate that PPP is valid for more than half of the G7 countries. Further, our results point out that the real exchange rate adjustment is mean reversion towards PPP equilibrium values in a nonlinear way. These results have important policy implications for G7 countries.