Copius Structural Shifts in Exchange Rates of the South African Rand (Post-1994): Do They Matter (for Unit Root Testing)? What are the Most Likely Triggers?
AbstractThere is a theoretical case for real exchange rates to be stationary, but conventional unit root tests generally find nonstationarity in most economic data expressed in nominal terms; exchange rates in particular. Perron (1989) questioned the latter interpretation on the basis that the presence of a unit root may be a manifestation of not allowing for structural change â€” a finding reaffirmed later by Zivot and Andrews (1992) and Clemente et al (1998) when single and double sudden and gradual endogenous breakpoints are accounted for in unit root tests. This paper considers testing for structural breaks and unit roots â€” in the presence of structural shifts â€” in the univariate data generating process (DGP) of the key nominal foreign exchange rates of the South African rand. Additionally, the connexions between the timing of the structural shifts and important economic and noneconomic events are explored.
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Bibliographic InfoPaper provided by Economic Research Southern Africa in its series Working Papers with number 359.
Length: 25 pages
Date of creation: 2013
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Exchange rate; unit root; non-stationarity; stationarity; trend; structural breaks;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
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