Long-Run Purchasing Power Parity with Asymmetric Adjustment: Evidence from Mainland China and Taiwan

Abstract

This study applies threshold cointegration test advanced by Enders and Siklos (2001) to investigate the properties of asymmetric adjustment in long-run purchasing power parity (PPP) for both Mainland China and Taiwan during the January 1986 to October 2009 period. Although there is evidence of long-run PPP for both Mainland China and Taiwan, the adjustment mechanism is asymmetric. These results have important policy implications for both Mainland China and Taiwan under study.threshold cointegration test; Purchasing Power Parity; asymmetric adjustment; Mainland China; Taiwan