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Smooth Transitions and Mean Reversion in Real Effective Exchange Rates Patterns in Neighboring Areas

  • Charalampos Pattichis

    (Department of Economics and Politics, The Nottingham Trent University, UK)

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    A recently developed unit root test is used to investigate the time series properties of the real effective exchange rate of ten OECD countries under conditions of structural change with the timing of the break determined endogenously. This technique tests the unit root null against stationarity around a smooth transition in linear trend. The results suggest that in most cases the real effective exchange rates are not mean reverting. This provides little support for the theory of purchasing power parity since the nominal exchange rate and relative prices will permanently tend to deviate from one another.

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    Article provided by Cyprus Economic Society and University of Cyprus in its journal Ekonomia.

    Volume (Year): 5 (2001)
    Issue (Month): 2 (Winter)
    Pages: 178-189

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    Handle: RePEc:ekn:ekonom:v:5:y:2001:i:2:p:178-189
    Contact details of provider: Web page: http://www.ekonomia.ucy.ac.cy/
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