Nonlinear and Asymmetric Adjustment to Purchasing Power Parity in East-Asian Countries

This study applies a simple and powerful nonlinear unit root test to test the validity of long-run purchasing power parity (PPP) in a sample of 10 East-Asian countries (i.e., China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand) over the period of March 1985 to September 2008. The empirical results indicate that PPP holds true for half of these 10 East-Asian countries under study, and the adjustment toward PPP is found to be nonlinear and in an asymmetric way