Revisiting long-run purchasing power parity with asymmetric adjustment for G-7 countries

In this study, we applied a threshold cointegration test advanced by Enders and Siklos (2001) to investigate the properties of asymmetric adjustment on long-run purchasing power parity (PPP) in G-7 countries between January 1994 and April 2010. Although there was strong evidence of long-run PPP for these G-7 countries, with the exception of Canada, the adjustment mechanism was asymmetric. These results have important policy implications for G-7 countries.

► We use a threshold cointegration test to investigate the properties of asymmetric adjustment on long-run purchasing power parity (PPP) in G-7 countries. ► Strong evidence of long-run PPP for the G-7 countries found and the adjustment mechanism was asymmetric. ► Results have important policy implications.