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Non-linearity versus non-normality in real exchange rate dynamics

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  • Arghyrou, Michael G.
  • Gregoriou, Andros

Abstract

We distinguish non-normality from non-linearity in G7 real exchange rate dynamics by correcting the critical values of the Kapetanios et al. [Kapetanios, G., Shin, Y., Snell, A., 2003. Testing for a unit root in the non-linear STAR framework. Journal of Econometrics, 112, 359-379] test for non-normality using the wild bootstrap. Our findings validate non-linear Purchasing Power Parity net of non-normality effects.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 100 (2008)
Issue (Month): 2 (August)
Pages: 200-203

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Handle: RePEc:eee:ecolet:v:100:y:2008:i:2:p:200-203

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Web page: http://www.elsevier.com/locate/ecolet

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References

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  1. Engel, J. & Haugh, D. & Pagan, A., 2005. "Some methods for assessing the need for non-linear models in business cycle analysis," International Journal of Forecasting, Elsevier, vol. 21(4), pages 651-662.
  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. Arghyrou, Michael G. & Gregoriou, Andros, 2007. "Testing for Purchasing Power Parity correcting for non-normality using the wild bootstrap," Economics Letters, Elsevier, vol. 95(2), pages 285-290, May.
  4. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  5. Peel, David & Sarno, Lucio & Taylor, Mark P, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles," CEPR Discussion Papers 2658, C.E.P.R. Discussion Papers.
  6. Van Dijk, Dick & Franses, Philip Hans & Lucas, Andre, 1999. "Testing for Smooth Transition Nonlinearity in the Presence of Outliers," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 217-35, April.
  7. Sarno, Lucio & Valente, Giorgio, 2006. "Deviations from purchasing power parity under different exchange rate regimes: Do they revert and, if so, how?," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3147-3169, November.
  8. Lucio Sarno, 2005. "Viewpoint: Towards a solution to the puzzles in exchange rate economics: where do we stand?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 673-708, August.
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Citations

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Cited by:
  1. Su, Jen-Je & Cheung, Adrian (Wai-Kong) & Roca, Eduardo, 2014. "Does Purchasing Power Parity hold? New evidence from wild-bootstrapped nonlinear unit root tests in the presence of heteroskedasticity," Economic Modelling, Elsevier, vol. 36(C), pages 161-171.
  2. John Ashton & Andros Gregoriou, 2012. "The Influence of Banking Centralisation on Depositors: Regional Heterogeneities in the Transmission of Monetary Policy," Working Papers 12005, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  3. Shelley, Gary L. & Wallace, Frederick H., 2011. "Further evidence regarding nonlinear trend reversion of real GDP and the CPI," Economics Letters, Elsevier, vol. 112(1), pages 56-59, July.

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