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Investigating smooth breaks in real exchange rates

Author

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  • Ching-Mei Chu

    (Ling-Tung University, Nan-tun District, Taichung City, Taiwan (China).)

Abstract

We investigate the validity of purchasing power parity of 7 Middle East countries over January 1980 to August 2008 by applying the stationary test with a nonlinear Fourier function as proposed by Becker et al. (2006). This test allows us to study the presence of unknown smooth structural breaks and the stationarity of real exchange rates. The empirical results indicate that PPP is not valid for most of these Middle East countries except the Bahrain and Israel.

Suggested Citation

  • Ching-Mei Chu, 2013. "Investigating smooth breaks in real exchange rates," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 1(1), pages 20-28, December.
  • Handle: RePEc:lrc:lareco:v:1:y:2013:i:1:p:20-28
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    File URL: http://journalofeconomics.org/index.php/site/article/view/29/193
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    More about this item

    Keywords

    Exchange Rate; Fourier Stationary Test; Middle East Countries; Nonlinearity; Purchasing Power Parity.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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