New Study Challenges Validity of Purchasing Power Parity, Impacting Global Economies
The study shows that the validity of purchasing power parity (PPP) is still debated, with different results from tests. By using a non-linear unit root test, the researchers found that exchange rates tend to move back towards PPP values over time. This means that previous conclusions about PPP being invalid might be wrong due to using a test that doesn't account for non-linearity.