IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-05f30009.html
   My bibliography  Save this article

Do exchange rates in caribbean and latin american countries exhibit nonlinearities?

Author

Listed:
  • Brian Francis

    (University of the West Indies, Cave Hill Campus)

  • Sunday Iyare

    (University of the West Indies, Cave Hill Campus)

Abstract

This paper applies the recently developed Kapetanios et al. (2003) nonlinear stationary test to annual time series data on real exchange rates in selected Caribbean and Latin American countries over the period 1980-2003, to determine whether or not these real exchange rates exhibit nonlinearities. Generally, the ADF rejects the null hypothesis of a unit root in real exchange rates for most of the countries in our study, whereas the Kapetanios et al. (2003) test fails to reject the null hypothesis of a unit root in real exchange rates for most countries. The fact that the real exchange rates in most of the countries included in our study are nonlinear stationary implies that the nominal exchange rate and relative price are cointegrated irrespective of which price indices are used to compute the real exchange rate.

Suggested Citation

  • Brian Francis & Sunday Iyare, 2006. "Do exchange rates in caribbean and latin american countries exhibit nonlinearities?," Economics Bulletin, AccessEcon, vol. 6(14), pages 1-20.
    • Handle: RePEc:ebl:ecbull:eb-05f30009
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/pubs/EB/2006/Volume6/EB-05F30009A.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Goh, Soo Khoon & Mithani, Dawood, 2000. "Deviation from Purchasing Power Parity: Evidence from Malaysia, 1973–1997," MPRA Paper 51922, University Library of Munich, Germany.
    2. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
    3. Sarno, Lucio, 2000. "Real exchange rate behavior in the Middle East: a re-examination," Economics Letters, Elsevier, vol. 66(2), pages 127-136, February.
    4. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    5. Liew, Venus Khim-sen & Baharumshah, Ahmad Zubaidi & Chong, Terence Tai-leung, 2004. "Are Asian real exchange rates stationary?," Economics Letters, Elsevier, vol. 83(3), pages 313-316, June.
    6. Ma, Yue & Kanas, Angelos, 2000. "Testing for nonlinear Granger causality from fundamentals to exchange rates in the ERM," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(1), pages 69-82, January.
    7. Mark J.Holmes, 2002. "Are there non linearities in US: Latin American real exchange behavior," Estudios de Economia, University of Chile, Department of Economics, vol. 29(2 Year 20), pages 177-190, December.
    8. George Kapetanios & Yongcheol Shin, 2006. "Unit root tests in three-regime SETAR models," Econometrics Journal, Royal Economic Society, vol. 9(2), pages 252-278, July.
    9. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393.
    10. Baum, Christopher F. & Barkoulas, John T. & Caglayan, Mustafa, 2001. "Nonlinear adjustment to purchasing power parity in the post-Bretton Woods era," Journal of International Money and Finance, Elsevier, vol. 20(3), pages 379-399, June.
    11. World Bank, 2004. "World Development Indicators 2004," World Bank Publications - Books, The World Bank Group, number 13890, December.
    12. Venus Khim-Sen Liew & Chee-Keong Choong & Evan Lau & Kian-Ping Lim, 2005. "Exchange Rate – Relative Price Nonlinear Cointegration Relationship in Malaysia," Economics Bulletin, AccessEcon, vol. 6(11), pages 1-16.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liew, Venus Khim-Sen & Baharumshah, Ahmad Zubaidi & Habibullah, Muzafar Shah & Midi, Habshah, 2008. "Monetary exchange rate model: supportive evidence from nonlinear testing procedures," MPRA Paper 7293, University Library of Munich, Germany.
    2. Yu Hsing, 2009. "The Determination Of The Costa Rica Colon/Usd Exchange Rate," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(1), pages 79-87.
    3. Dilem Yıldırım, 2016. "Empirical Investigation of Purchasing Power Parity for Turkey: Evidence from Recent Nonlinear Unit Root Tests," ERC Working Papers 1604, ERC - Economic Research Center, Middle East Technical University, revised Apr 2016.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:ebl:ecbull:v:6:y:2006:i:14:p:1-20 is not listed on IDEAS
    2. Venus Khim-Sen Liew & Hock-Ann Lee & Kian-Ping Lim & Huay-Huay Lee, 2008. "Linearity and Stationarity of South Asian Real Exchange Rates," The IUP Journal of Applied Economics, IUP Publications, vol. 0(5), pages 48-58, September.
    3. Liew, Venus Khim-Sen & Baharumshah, Ahmad Zubaidi & Habibullah, Muzafar Shah & Midi, Habshah, 2008. "Monetary exchange rate model: supportive evidence from nonlinear testing procedures," MPRA Paper 7293, University Library of Munich, Germany.
    4. Chi-Wei Su & Tsangyao Chang & Yu-Shao Liu, 2012. "Revisiting purchasing power parity for African countries: with nonlinear panel unit-root tests," Applied Economics, Taylor & Francis Journals, vol. 44(25), pages 3263-3273, September.
    5. Baharumshah, Ahmad Zubaidi & Liew, Venus Khim-Sen & Chowdhury, Ibrahim, 2010. "Asymmetry dynamics in real exchange rates: New results on East Asian currencies," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 648-661, October.
    6. Salah Nusair, 2012. "Nonlinear adjustment of Asian real exchange rates," Economic Change and Restructuring, Springer, vol. 45(3), pages 221-246, August.
    7. Frédérique Bec & Mélika Ben Salem & Marine Carrasco, 2010. "Detecting Mean Reversion in Real Exchange Rates from a Multiple Regime star Model," Annals of Economics and Statistics, GENES, issue 99-100, pages 395-427.
    8. Christoph Rothe & Philipp Sibbertsen, 2006. "Phillips-Perron-type unit root tests in the nonlinear ESTAR framework," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 90(3), pages 439-456, September.
    9. Venus Khim-Sen Liew, 2004. "Nonlinear Adjustment of ASEAN-5 Real Exchange Rates: Symmetrical or Asymmetrical?," Economics Bulletin, AccessEcon, vol. 6(8), pages 1-19.
    10. Venus Khim-Sen Liew, 2003. "The Validity of PPP Revisited: An Application of Non-linear Unit Root Test," International Finance 0308001, University Library of Munich, Germany.
    11. Zisimos Koustas & Jean-Francois Lamarche, 2005. "Policy-Induced Mean Reversion in the Real Interest Rate?," Working Papers 0503, Brock University, Department of Economics, revised Jul 2005.
    12. Tsangyao Chang & Yu-Shao Liu & Chi-Wei Su, 2012. "Purchasing power parity with nonlinear and asymmetric smooth adjustment for the Middle Eastern countries," Applied Economics Letters, Taylor & Francis Journals, vol. 19(5), pages 487-491, March.
    13. Liew, Venus Khim-sen & Baharumshah, Ahmad Zubaidi & Chong, Terence Tai-leung, 2004. "Are Asian real exchange rates stationary?," Economics Letters, Elsevier, vol. 83(3), pages 313-316, June.
    14. Venus Khim-Sen Liew & Ricky Chee-Jiun Chia & Tai-Hu Ling, 2010. "Long-run validity of purchasing power parity and rank tests for cointegration for Central Asian countries," Applied Economics Letters, Taylor & Francis Journals, vol. 17(11), pages 1073-1077.
    15. repec:ebl:ecbull:v:6:y:2005:i:11:p:1-16 is not listed on IDEAS
    16. Aviral Tiwari & Muhammad Shahbaz, 2014. "Revisiting Purchasing Power Parity for India using threshold cointegration and nonlinear unit root test," Economic Change and Restructuring, Springer, vol. 47(2), pages 117-133, May.
    17. Chang, Tsangyao & Lee, Chia-Hao & Chou, Pei-I & Tang, Dai-Piao, 2011. "Revisiting long-run purchasing power parity with asymmetric adjustment for G-7 countries," Japan and the World Economy, Elsevier, vol. 23(4), pages 259-264.
    18. Venus Khim-Sen Liew & Ahmad Zubaidi Baharumshah & Kian-Ping Lim, 2004. "On Singapore Dollar–U.S. Dollar And Purchasing Power Parity," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 49(01), pages 71-84.
    19. Mohsen Bahmani‐Oskooee & Scott W. Hegerty, 2009. "Purchasing Power Parity In Less‐Developed And Transition Economies: A Review Paper," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 617-658, September.
    20. Xie, Zixiong & Chen, Shyh-Wei & Hsieh, Chun-Kuei, 2021. "Facing up to the polysemy of purchasing power parity: New international evidence," Economic Modelling, Elsevier, vol. 98(C), pages 247-265.
    21. HOLMES, Mark J, 2008. "Non-Linear Trend Stationarity And Co-Trending In Latin American Real Exchange Rates," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(1), pages 107-118.
    22. Jiang, Chun & Jian, Na & Liu, Tie-Ying & Su, Chi-Wei, 2016. "Purchasing power parity and real exchange rate in Central Eastern European countries," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 349-358.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-05f30009. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.