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The behavior of real exchange rate: Nonlinearity and breaks

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  • Lee, Chia-Hao
  • Chou, Pei-I

Abstract

We analyze the possibility of nonlinear adjustment and unknown smooth breaks in the stationarity of real exchange rates in the Group of 20 (G-20) countries over a period from January 1994 to April 2010 by applying the Panel SURADF test with Fourier function. Although most of the results from a univariate unit root test and panel unit root test indicated a fail to reject the unit root null hypothesis in the real exchange rates of G-20, the results of the Panel SURADF test with Fourier function show a strong rejection of non-stationarity of real exchange rates among the G-20 and imply that PPP is valid for all in the G-20. The evidence also implies that there are nonlinearity and smooth breaks in real exchange rates of G-20 countries.

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  • Lee, Chia-Hao & Chou, Pei-I, 2013. "The behavior of real exchange rate: Nonlinearity and breaks," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 125-133.
    • Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:125-133
    DOI: 10.1016/j.iref.2012.09.007
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    3. Kai-Hua WANG & Chi-Wei SU & Hsu-Ling CHANG & Ji MA & Cristina IOVU, 2017. "Purchasing Power Parity In China: An Empirical Investigation Based On Bootstrap Rollingwindow Test," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 166-181, December.
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    9. Yoon, Jong Cheol & Min, Dai Hong & Jei, Sang Young, 2019. "Empirical test of purchasing power parity using a time-varying cointegration model for China and the UK," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 521(C), pages 41-47.
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    More about this item

    Keywords

    Real exchange rates; Purchasing power parity; Panel SURADF test with Fourier function; G-20 countries;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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