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Nonlinear Mean Reversion in Real Exchange Rates: Evidence from Developing and Emerging Market Economies

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  • Mario Cerrato

    ()
    (London Metropolitan University)

  • Nick Sarantis

    ()
    (London Metropolitan University)

Abstract

We provide evidence on nonlinear mean reversion in the real exchange rates of developing and emerging market economies, using recently developed nonlinear unit root tests and a unique set of monthly data on black market exchange rates.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 6 (2006)
Issue (Month): 7 ()
Pages: 1-14

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Handle: RePEc:ebl:ecbull:eb-06f30004

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  1. Christopher F. Baum & Mustafa Caglayan & John Barkoulas, 1998. "Nonlinear Adjustment to Purchasing Power Parity in the post-Bretton Woods Era," Boston College Working Papers in Economics, Boston College Department of Economics 404., Boston College Department of Economics, revised 16 Nov 1999.
  2. Sercu, Piet & Uppal, Raman & Van Hulle, Cynthia, 1995. " The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, American Finance Association, American Finance Association, vol. 50(4), pages 1309-19, September.
  3. Lucio Sarno & Mark P. Taylor, 2002. "Purchasing Power Parity and the Real Exchange Rate," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 5.
  4. Sollis, Robert & Leybourne, Stephen & Newbold, Paul, 2002. "Tests for Symmetric and Asymmetric Nonlinear Mean Reversion in Real Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 34(3), pages 686-700, August.
  5. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-42, November.
  6. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 22(8-9), pages 1235-1274, August.
  7. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(4), pages 862-79, August.
  8. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, Elsevier, vol. 112(2), pages 359-379, February.
  9. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 5(2), pages 153-80.
  10. Venus Khim-Sen Liew & Terence Tai-Leung Chong & Kian-Ping Lim, 2003. "The inadequacy of linear autoregressive model for real exchange rates: empirical evidence from Asian economies," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(12), pages 1387-1392.
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Cited by:
  1. Kamrul Hassan & Ruhul Salim, 2011. "The linkage between relative population growth and purchasing power parity: Cross country evidence," International Journal of Development Issues, Emerald Group Publishing, Emerald Group Publishing, vol. 10(2), pages 154-169, July.
  2. Kuswanto, Heri & Sibbertsen, Philipp, 2009. "Testing for Long Memory Against ESTAR Nonlinearities," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-427, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  3. Maican, Florin G. & Sweeney, Richard J., 2006. "Real Exchange Rate Adjustment In European Transition Countries," Working Papers in Economics, University of Gothenburg, Department of Economics 202, University of Gothenburg, Department of Economics.
  4. Akarim, Yasemin Deniz & Sevim, Serafettin, 2013. "The impact of mean reversion model on portfolio investment strategies: Empirical evidence from emerging markets," Economic Modelling, Elsevier, Elsevier, vol. 31(C), pages 453-459.
  5. Sahar Bahmani, 2007. "Do budget deficits follow a linear or non-linear path?," Economics Bulletin, AccessEcon, vol. 5(14), pages 1-9.

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