Are Real Exchange Rates Nonlinear or Nonstationary? Evidence from a new Threshold Unit Root Test
AbstractWe analyze the post-float real exchange rates for a group of OECD countries using the newly developed threshold test and tests for unit roots against stationary but nonlinear alternative by Caner and Hansen ( 2001). These tools help us disentangle the nonlinearity from the nonstationarity rigorously for the first time in the literature. After applying the threshold test and unit root tests: we find evidence for non-linearity of exchange rates. Specifically real exchange rates behave like a unit root in a band and when the depreciation or appreciation of the currency against $US exceeds the boundaries of the band , the real exchange rates are mean-reverting. The threshold value is treated as unknown and estimated in the model.
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Bibliographic InfoPaper provided by EconWPA in its series International Finance with number 0512001.
Date of creation: 09 Dec 2005
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Other versions of this item:
- Basci Erdem & Caner Mehmet, 2005. "Are Real Exchange Rates Nonlinear or Nonstationary? Evidence from a New Threshold Unit Root Test," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(4), pages 1-21, December.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-14 (All new papers)
- NEP-ETS-2005-12-14 (Econometric Time Series)
- NEP-IFN-2005-12-14 (International Finance)
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