Real exchange rates may have nonlinear trends

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Real exchange rates may have nonlinear trends

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David O. Cushman

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David O. Cushman

Abstract

The unit root null is tested against possible nonlinear-trend stationarity for 13 US and German bilateral real exchange rates over the floating exchange rate period. Eight tests specified with nonlinear trends are applied. Simulations are used to determine individual and joint significance levels and to help interpret the results. Unit roots can be rejected for a number of the exchange rates, and nonlinear-trend stationarity appears more plausible than mean or linear-trend stationarity as the alternative. In several cases, estimates of the trends support the nonlinear-trend conclusion with statistical and economic significance. Thus, purchasing power parity is probably violated, but real exchange rates have meaningful long-run equilibrium values. Copyright © 2007 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 13 (2008)
Issue (Month): 2 ()
Pages: 158-173
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Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:2:p:158-173

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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repec:bep:sndecm:6:2002:1:1003-1003 is not listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Juan Carlos Cuestas & Paulo José Regis, 2008. "Testing for PPP in Australia: Evidence from unit root test against nonlinear trend stationarity alternatives," Economics Bulletin, Economics Bulletin, vol. 3(27), pages 1-8. [Downloadable!]
Other versions:
- Juan Carlos Cuestas & Paulo Jose Regis, 2008. "Testing for PPP in Australia: evidence from unit root tests against nonlinear trend stationarity alternatives," Working Papers 2008/3, Nottingham Trent University, Nottingham Business School, Economics Division. [Downloadable!]
Juan Carlos Cuestas & Estefania Mourelle, 2008. "Nonlinearities in real exchange rate determination: do African exchange rates follow a radom walk?," Working Papers 2008/8, Nottingham Trent University, Nottingham Business School, Economics Division. [Downloadable!]

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