Purchasing power parity in GIIPS countries: evidence from unit root tests with breaks and non-linearity

Abstract

Purpose – This paper aims to test purchasing power parity (PPP) hypothesis for Greece, Italy, Ireland, Portugal and Spain, which are known as the GIIPS countries. Design/methodology/approach – The authors conduct a comprehensive analysis by using unit root approaches without and with structural breaks and non-linearity. Findings – The PPP is valid for the GIIPS countries. Considering structural breaks in non-linear framework plays a crucial role. Originality/value – There is no empirical study testing PPP hypothesis by focusing on the GIIPS countries. This study further takes into account for structural breaks and non-linearity in the real exchange rates of these countries.

Keywords

• PPP
• Unit root tests
• Real exchange rate
• GIIPS