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Rescaled variance analysis of real exchange rates

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  • Ata Assaf
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    Abstract

    The characterization of real exchange rate series as random in nature has been questioned in recent times by the application of new statistical tools. This study uses a new test proposed by Giraitis et al. (Journal of Econometrics, 112, pp. 265-9, 2003) and based on KPSS (Journal of Econometrics, 54, pp. 159-78, 1992) test. The rescaled variance (V/S) statistic is shown to have a simpler asymptotic distribution and achieve a better balance of size and power than Lo's (1991) and KPSS (1992) test. Application of the new test suggests that real exchange rate movements do not show evidence of long memory.

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    File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/1350485042000221562&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 11 (2004)
    Issue (Month): 5 ()
    Pages: 303-306

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    Handle: RePEc:taf:apeclt:v:11:y:2004:i:5:p:303-306

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    1. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
    2. GIRAITIS, Liudas & KOKOSZKA, Piotr & LEIPUS, Remigijus & TEYSSIÈRE, Gilles, . "Rescaled variance and related tests for long memory in volatility and levels," CORE Discussion Papers RP -1594, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Kenneth A. Froot & Kenneth Rogoff, 1996. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
    4. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 488-509, June.
    5. Olekalns, Nilss & Wilkins, Nigel, 1998. "Re-examining the Evidence for Long-Run Purchasing Power Parity," The Economic Record, The Economic Society of Australia, vol. 74(224), pages 54-61, March.
    6. Gil-Alana, Luis A., 2000. "Mean reversion in the real exchange rates," Economics Letters, Elsevier, vol. 69(3), pages 285-288, December.
    7. Henry, Olan T. & Olekalns, Nilss, 2002. "Does the Australian dollar real exchange rate display mean reversion," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 651-666, October.
    8. Michael Dueker & Apostolos Serletis, 2000. "Do real exchange rates have autoregressive unit roots? a test under the alternative of long memory and breaks," Working Papers 2000-016, Federal Reserve Bank of St. Louis.
    9. Apostolos Serletis & Periklis Gogas, 2000. "Purchasing power parity, nonlinearity and chaos," Applied Financial Economics, Taylor & Francis Journals, vol. 10(6), pages 615-622.
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