Abstract:

The validity of purchasing power parity is among the fields of study that still maintains its importance in the economics literature. In this study, the validity of purchasing power parity was examined by applying the Pesaran (2007) unit root test, using annual data for the period 2008-2020 for 37 OECD countries. According to the results of the analysis, according to the CIPS test results, it is concluded that the purchasing power parity on a panel basis is valid at 1% significance level for OECD countries. On the other hand, according to the Truncated CIPS test results, purchasing power parity is valid only at 10% significance level. According to the CADF unit root test results for the purchasing power parity variable on the basis of OECD countries, purchasing power parity is valid in Austria, Canada, Denmark, Iceland, Ireland, Israel, Italy, Japan, Lithuania, Norway, Poland, Slovenia and the United Kingdom. There is no statistical evidence that purchasing power parity is valid in other countries. There are many country-specific factors that prevent purchasing power parity from being valid. Factors such as global and national shocks, policies applied towards exchange rates, interest rates and foreign trade, increase in international risks, deterioration in expectations may limit the validity of purchasing power parity. Collaborative design of international trade policies to increase the welfare of countries can also play an important role in the sustainability of global welfare increase.

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