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Are Real Exchange Rates Nonlinear with a Unit Root? Evidence on Purchasing Power Parity for China: A Note

Author

Listed:
  • Tsangyao Chang

    (Department of Finance, Feng Chia University, Taichung, Taiwan)

  • Su-yuan Lin

    (Graduate Institute of Management Sciences, Tamkang University, Taipei, TAIWAN)

  • Horng-jinh Chang

    (Graduate Institute of Management Sciences, Tamkang University, Taipei, TAIWAN)

Abstract

This article applies the threshold autoregressive model proposed by Caner and Hansen (2001) to examine both linearity and stationarity of China's real exchange rate vis-à-vis her 9 trading partner countries over the period of January 1986 to October 2009. Two main conclusions are drawn. Firstly, the empirical results indicate that China's real exchange is a nonlinear process. Secondly, a unit root in real exchange rate was found for most of the cases under study. This result provides no support for purchasing power parity for China relative to their major trading partner countries.

Suggested Citation

  • Tsangyao Chang & Su-yuan Lin & Horng-jinh Chang, 2010. "Are Real Exchange Rates Nonlinear with a Unit Root? Evidence on Purchasing Power Parity for China: A Note," Economics Bulletin, AccessEcon, vol. 30(3), pages 1897-1905.
    • Handle: RePEc:ebl:ecbull:eb-10-00335
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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I3-P172.pdf
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    Cited by:

    1. 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.

    More about this item

    Keywords

    Threshold Autoregressive Model; Linearity and Stationarity; Purchasing Power Parity; Threshold Unit Root Test;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F3 - International Economics - - International Finance

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