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Nonlinear mean-reversion in Southeast Asian real exchange rates

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  • Doo-Yull Choi
  • Bong-Han Kim
  • See-Won Kim

Abstract

We find nonlinear mean reverting tendencies in Southeast Asian currencies by applying the newly developed nonlinear unit-root test by Park and Shintani (2005). First, with the US dollar as the numeraire currency, we find that 63% of the real exchange rates of Southeast Asian currencies turn out to be stationary. However, with the Japanese yen as the numeraire currency, we find no evidence in favour of Purchasing Power Parity (PPP) for most currencies in Southeast Asia, except for the Korean won and Taiwanese dollar. These findings imply that Southeast Asian currencies may not form a yen-dominated Asian exchange rate system. Second, when the dollar-based real exchange rates of Southeast Asian countries are nonlinear mean reverting, we find that the mean-reverting process could be well described by the Exponential Smooth Transition Autoregressive (ESTAR) model, rather than the Double Threshold Autoregressive (DTAR) or Double Logistic Smooth Transition Autoregressive (DLSTAR) model. Our results are reinforced by impulse response function and forecasting analysis.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603107.2011.572851
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Bibliographic Info

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

Volume (Year): 21 (2011)
Issue (Month): 19 ()
Pages: 1409-1421

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Handle: RePEc:taf:apfiec:v:21:y:2011:i:19:p:1409-1421

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Related research

Keywords: purchasing power parity; nonlinear unit root test; Asian real exchange rates; dollar and yen;

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Cited by:
  1. Gilles de Truchis & Benjamin Keddad, 2012. "South East Asian Monetary Integration: New Evidences from Fractional Cointegration of Real Exchange Rates," AMSE Working Papers 1229, Aix-Marseille School of Economics, Marseille, France, revised 05 Nov 2012.
  2. Frédérique Bec & Songlin Zeng, 2012. "Are Southeast Asian Real Exchange Rates Mean Reverting?," Working Papers hal-00685812, HAL.

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