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Testing for a unit root in the presence of a nonlinear trend: The case of Australian Reel Exchange Rate

Author

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  • Mubariz Hasanov

    (Okan University, Department of Economics)

Abstract

In this paper, we examine stationarity of the Australian real exchange rate (RER). For this purpose, we modify the test of Kapetanios et. al. [Testing for a unit root in the nonlinear STAR framework. Journal of Econometrics 112 (2003) 359-379] to allow for a nonlinear trend function in the data generating process. Using bootstrap techniques, we show that the null hypothesis of unit root can be rejected, providing evidence in favour of PPP proposition for the Australian RER.

Suggested Citation

  • Mubariz Hasanov, 2014. "Testing for a unit root in the presence of a nonlinear trend: The case of Australian Reel Exchange Rate," Econometrics Letters, Bilimsel Mektuplar Organizasyonu (Scientific letters), vol. 1(1), pages 10-17.
    • Handle: RePEc:bmo:bmoart:v:1:y:2014:i:1:p:10-17
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    References listed on IDEAS

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    More about this item

    Keywords

    Purchasing Power Parity; Nonlinearity; Unit Root;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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