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Stationarity of Asian real exchange rates: An empirical application of multiple testing to nonstationary panels with a structural break

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  • Matsuki, Takashi
  • Sugimoto, Kimiko
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    Abstract

    This paper investigates the stationarity of the real exchange rates of the currencies for ten Asian countries against the US dollar during the pre-Lehman period. This paper explicitly investigates the presence of a structural break that occurred at unknown dates across countries and which may have been caused by the Asian financial crisis in 1997–1998. To identify which of the ten countries hold real exchange rate stationarity, that is, long-run Purchasing Power Parity, the resampling-based multiple testing proposed by Romano and Wolf (2005) is employed while dealing with possible cross-sectional correlation among the countries and avoiding the over-rejection of the null hypothesis or the multiplicity problem. Moreover, the paper examines the small-sample property of the multiple testing when there is a structural break in cross-sectionally dependent panels. Finally, the empirical results show that the stationarity hypothesis of the real exchange rate is significantly supported in some Asian countries.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 34 (2013)
    Issue (Month): C ()
    Pages: 52-58

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    Handle: RePEc:eee:ecmode:v:34:y:2013:i:c:p:52-58

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Purchasing Power Parity; East Asia; Stationarity; Panel unit root test; Multiple testing;

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    References

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    Cited by:
    1. Gilles de Truchis & Benjamin Keddad, 2012. "South East Asian Monetary Integration: New Evidences from Fractional Cointegration of Real Exchange Rates," William Davidson Institute Working Papers Series wp1039, William Davidson Institute at the University of Michigan.

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