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Nonlinear trend stationarity of real exchange rates: the case of the Mediterranean countries

Author

Listed:
  • Mariam Camarero
  • Juan Carlos Cuestas
  • Javier Ordonez

Abstract

The aim of this article is to provide additional evidence on the fulfilment of the Purchasing Power Parity (PPP) hypothesis in the so-called Mediterranean countries. In order to test for the empirical validity of such a hypothesis, we have applied two types of unit root tests. The first group is due to Bierens (1997), who generalised the alternative hypothesis to nonlinear trend stationarity and the second is Leybourne et al.'s (1998) approach that uses a nonlinear specification for the intercept and slope in order to detrend the series. The results suggest that the evidence in favour of the Purchasing Power Parity hypothesis increases when we allow for nonlinear alternatives.

Suggested Citation

  • Mariam Camarero & Juan Carlos Cuestas & Javier Ordonez, 2008. "Nonlinear trend stationarity of real exchange rates: the case of the Mediterranean countries," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 1(1), pages 30-46.
    • Handle: RePEc:ids:injbaf:v:1:y:2008:i:1:p:30-46
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    Cited by:

    1. Juan Carlos Cuestas, 2009. "Purchasing power parity in Central and Eastern European countries: an analysis of unit roots and nonlinearities," Applied Economics Letters, Taylor & Francis Journals, vol. 16(1), pages 87-94.
    2. Juan Carlos Cuestas & Estefania Mourelle, 2011. "Nonlinearities in real exchange rate determination: do African exchange rates follow a random walk?," Applied Economics, Taylor & Francis Journals, vol. 43(2), pages 243-258.
    3. Juan Carlos Cuestas & Paulo José Regis, 2008. "Testing for PPP in Australia: Evidence from unit root test against nonlinear trend stationarity alternatives," Economics Bulletin, AccessEcon, vol. 3(27), pages 1-8.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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