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Stationarity of Asian real exchange rates: An empirical application of multiple testing to nonstationary panels with a structural break

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  • Matsuki, Takashi
  • Sugimoto, Kimiko

Abstract

This paper investigates the stationarity of the real exchange rates of the currencies for ten Asian countries against the US dollar during the pre-Lehman period. This paper explicitly investigates the presence of a structural break that occurred at unknown dates across countries and which may have been caused by the Asian financial crisis in 1997–1998. To identify which of the ten countries hold real exchange rate stationarity, that is, long-run Purchasing Power Parity, the resampling-based multiple testing proposed by Romano and Wolf (2005) is employed while dealing with possible cross-sectional correlation among the countries and avoiding the over-rejection of the null hypothesis or the multiplicity problem. Moreover, the paper examines the small-sample property of the multiple testing when there is a structural break in cross-sectionally dependent panels. Finally, the empirical results show that the stationarity hypothesis of the real exchange rate is significantly supported in some Asian countries.

Suggested Citation

  • Matsuki, Takashi & Sugimoto, Kimiko, 2013. "Stationarity of Asian real exchange rates: An empirical application of multiple testing to nonstationary panels with a structural break," Economic Modelling, Elsevier, vol. 34(C), pages 52-58.
  • Handle: RePEc:eee:ecmode:v:34:y:2013:i:c:p:52-58
    DOI: 10.1016/j.econmod.2012.11.056
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    References listed on IDEAS

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    Cited by:

    1. Takashi Matsuki, 2016. "Linear and nonlinear comovement in Southeast Asian local currency bond markets: a stepwise multiple testing approach," Empirical Economics, Springer, vol. 51(2), pages 591-619, September.
    2. de Truchis, Gilles & Keddad, Benjamin, 2013. "Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 394-412.

    More about this item

    Keywords

    Purchasing Power Parity; East Asia; Stationarity; Panel unit root test; Multiple testing;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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