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Testing seasonal mean-reversion in the real exchange rates: An application of nonlinear IV estimator

  • Ho, Tsung-wu
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    Recent panel unit root tests for PPP usually ignore seasonality, which may generate unknown effects on cross-sectional dependencies. Chang [Chang Y., 2002. Nonlinear IV unit root tests in panels with cross-sectional dependency. Journal of Econometrics 110, 261-292] proposed a nonlinear IV estimator removing cross-sectional dependencies asymptotically. We extend it to test seasonal panel unit root in the form of Hylleberg et al. [Hylleberg, S., Engle, R.F., Granger, C.W.J., Yoo, B.S., 1990. Seasonal integration and cointegration. Journal of Econometrics 44, 215-238]. The empirical robustness of the statistic to seasonality is confirmed.

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    File URL: http://www.sciencedirect.com/science/article/B6V84-4PB0PGW-5/1/5ec2817cc7673e2ce10ea2313a478a71
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    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 99 (2008)
    Issue (Month): 2 (May)
    Pages: 314-316

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    Handle: RePEc:eee:ecolet:v:99:y:2008:i:2:p:314-316
    Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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    1. Papell, David H., 1997. "Searching for stationarity: Purchasing power parity under the current float," Journal of International Economics, Elsevier, vol. 43(3-4), pages 313-332, November.
    2. Sarno, Lucio & Taylor, Mark P., 1998. "Real exchange rates under the recent float: unequivocal evidence of mean reversion," Economics Letters, Elsevier, vol. 60(2), pages 131-137, August.
    3. Phillips, Peter C. B. & Park, Joon Y. & Chang, Yoosoon, 2004. "Nonlinear instrumental variable estimation of an autoregression," Journal of Econometrics, Elsevier, vol. 118(1-2), pages 219-246.
    4. Papell, David H & Theodoridis, Hristos, 2001. "The Choice of Numeraire Currency in Panel Tests of Purchasing Power Parity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 790-803, August.
    5. Renato FlĂ´res & Philippe Jorion & Pierre-Yves Preumont & Ariane Szafarz, 1999. "Multivariate Unit root Tests of the PPP Hypothesis," ULB Institutional Repository 2013/711, ULB -- Universite Libre de Bruxelles.
    6. Yoosoon Chang, 2000. "Nonlinear IV Unit Root Tests in Panels with Cross-Sectional Dependency," CIRJE F-Series CIRJE-F-85, CIRJE, Faculty of Economics, University of Tokyo.
    7. Sarno, Lucio & Taylor, Mark P, 1997. "The Behaviour of Real Exchange Rates During the Post-Bretton Woods Period," CEPR Discussion Papers 1730, C.E.P.R. Discussion Papers.
    8. Otero, Jesus & Smith, Jeremy & Giulietti, Monica, 2005. "Testing for seasonal unit roots in heterogeneous panels," Economics Letters, Elsevier, vol. 86(2), pages 229-235, February.
    9. Hylleberg, S. & Engle, R.F. & Granger, C.W.J. & Yoo, B.S., 1988. "Seasonal, Integration And Cointegration," Papers 6-88-2, Pennsylvania State - Department of Economics.
    10. Danny Quah, 1993. "Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data," FMG Discussion Papers dp171, Financial Markets Group.
    11. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August.
    12. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    13. Tsung-Wu Ho, 2002. "Searching Stationarity in the Real Exchange Rates: Application of the SUR Estimator," Open Economies Review, Springer, vol. 13(3), pages 275-289, July.
    14. Wu, Jyh-Lin & Wu, Shaowen, 2001. "Is Purchasing Power Parity Overvalued?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 804-12, August.
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