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A revisit to the non-linear mean reversion of real exchange rates: Evidence from a series-specific non-linear panel unit-root test

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  • Wu, Jyh-Lin
  • Lee, Hsiu-Yun

Abstract

The purpose of this paper is to construct a series-specific non-linear panel unit-root test and then apply it to examine the non-linear mean reversion of real exchange rates for two different panels of industrial countries. We find that the non-linear series-specific panel unit root test achieves higher power and more reasonable size than the linear one suggested by Breuer et al. [Breuer, J.B., McNown, R., Wallace, M., 2002. Series-specific unit root tests with panel data. Oxford Bulletin of Economics and Statistics 64, 527-546] when the data generating process is calibrated to reflect significant non-linear behaviors. Applying the test to examine the stationarity of real exchange rates with two different panels of countries, we find that about half of the real exchange rates are non-linear stationary in each panel. Moreover, we find that our bootstrap tests achieve a reasonable size based upon a bootstrap-after-bootstrap method. Our findings point out significant non-linearity in the dynamics of real exchange rates.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 31 (2009)
Issue (Month): 4 (December)
Pages: 591-601

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Handle: RePEc:eee:jmacro:v:31:y:2009:i:4:p:591-601

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Panel unit-root tests Real exchange rates Non-linearity Bootstrap-after-bootstrap;

References

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Citations

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Cited by:
  1. Mark J. Holmes & Jesús Otero & Theodore Panagiotidis, 2011. "PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, cross-Sectional Dependency and Structural Breaks," Working Paper Series 51_11, The Rimini Centre for Economic Analysis.
  2. Tsangyao Chang & Wen-Chi Liu & Goodness C. Aye & Rangan Gupta, 2013. "Are there Housing Bubbles in South Africa? Evidence from SPSM-Based Panel KSS Test with a Fourier Function," Working Papers 201377, University of Pretoria, Department of Economics.
  3. Lau, Chi Keung Marco & Suvankulov, Farrukh & Su, Yongyang & Chau, Frankie, 2012. "Some cautions on the use of nonlinear panel unit root tests: Evidence from a modified series-specific non-linear panel unit-root test," Economic Modelling, Elsevier, vol. 29(3), pages 810-816.
  4. Nilgun Yavuz & Veli Yilanci, 2013. "Convergence in Per Capita Carbon Dioxide Emissions Among G7 Countries: A TAR Panel Unit Root Approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 54(2), pages 283-291, February.
  5. He, Huizhen & Ranjbar, Omid & Chang, Tsangyao, 2013. "Purchasing power parity in transition countries: Old wine with new bottle," Japan and the World Economy, Elsevier, vol. 28(C), pages 24-32.
  6. He, Huizhen & Chou, Ming Che & Chang, Tsangyao, 2014. "Purchasing power parity for 15 Latin American countries: Panel SURKSS test with a Fourier function," Economic Modelling, Elsevier, vol. 36(C), pages 37-43.
  7. Yanli LI, Hongfeng PENG & Hongfeng PENG, 2013. "Inflation Persistence in Nine Latin American Countries: Panel SURKSS Test with a Fourier Function," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 132-143, October.

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