Empirical Analysis on Stability of Real Effective Exchange Rate Based on PPP Theory

Purchasing power parity (PPP) has been one of the most enduring concepts in global economy. However, its validity questioned around for a long time. In this study, annual data on real effective exchange rates 64 countries or regions from 1994−2022 are used to conduct unit root test without structural breaks, followed by same containing two breaks. The result shows that with break leads an increase number steady state rate, as method reflects effect irresistible factors smoothness. general, 43 have series which means 67.19% them follow mean reversion, confirming PPP theory. Developed (regions) and emerging overall, opposite is true frontier (regions).