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The behavior of real exchange rate: Nonlinearity and breaks

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  • Lee, Chia-Hao
  • Chou, Pei-I

Abstract

We analyze the possibility of nonlinear adjustment and unknown smooth breaks in the stationarity of real exchange rates in the Group of 20 (G-20) countries over a period from January 1994 to April 2010 by applying the Panel SURADF test with Fourier function. Although most of the results from a univariate unit root test and panel unit root test indicated a fail to reject the unit root null hypothesis in the real exchange rates of G-20, the results of the Panel SURADF test with Fourier function show a strong rejection of non-stationarity of real exchange rates among the G-20 and imply that PPP is valid for all in the G-20. The evidence also implies that there are nonlinearity and smooth breaks in real exchange rates of G-20 countries.

Suggested Citation

  • Lee, Chia-Hao & Chou, Pei-I, 2013. "The behavior of real exchange rate: Nonlinearity and breaks," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 125-133.
  • Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:125-133
    DOI: 10.1016/j.iref.2012.09.007
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    References listed on IDEAS

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    Cited by:

    1. Kim, Hyeongwoo & Ryu, Deockhyun, 2015. "A nonparametric study of real exchange rate persistence over a century," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 406-418.
    2. Hyeongwoo Kim & Jintae Kim, 2014. "London Calling: Nonlinear Mean Reversion across National Stock Markets," Auburn Economics Working Paper Series auwp2014-13, Department of Economics, Auburn University.
    3. repec:rjr:romjef:v::y:2017:i:4:p:166-181 is not listed on IDEAS
    4. Choudhri, Ehsan U. & Schembri, Lawrence L., 2014. "Productivity, commodity prices and the real exchange rate: The long-run behavior of the Canada–US exchange rate," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 537-551.
    5. Jiang, Chun & Jian, Na & Liu, Tie-Ying & Su, Chi-Wei, 2016. "Purchasing power parity and real exchange rate in Central Eastern European countries," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 349-358.
    6. Mensi, Walid & Hammoudeh, Shawkat & Yoon, Seong-Min, 2014. "Structural breaks and long memory in modeling and forecasting volatility of foreign exchange markets of oil exporters: The importance of scheduled and unscheduled news announcements," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 101-119.
    7. repec:eee:reveco:v:49:y:2017:i:c:p:211-222 is not listed on IDEAS

    More about this item

    Keywords

    Real exchange rates; Purchasing power parity; Panel SURADF test with Fourier function; G-20 countries;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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