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Unit roots or nonlinear stationarity in Turkish real exchange rates

  • Haluk Erlat
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    The objective of this paper is to test if Turkish real exchange rates have a linear unit root or are generated by an Exponential Smooth Transition Autoregressive Model for the post-1980 period. Using two real exchange rates, one with the USA and the other with Germany, strong evidence of nonlinear stationarity was found for the US CPI-based series but no such evidence for the DM CPI-based series. When compared with earlier results in a previous paper where the alternative of the linear unit root test was stationarity with multiple shifts in the deterministic terms, it was found that similar results were obtained for the US CPI-based series but not for the DM CPI-based one, possibly implying that the multiple shifts approach may be more appropriate for the Turkish series.

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    Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 11 (2004)
    Issue (Month): 10 ()
    Pages: 645-650

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    Handle: RePEc:taf:apeclt:v:11:y:2004:i:10:p:645-650
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    1. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of a Modified Dickey-Fuller Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(3), pages 411-19, August.
    2. Sercu, Piet & Uppal, Raman & Van Hulle, Cynthia, 1995. " The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, American Finance Association, vol. 50(4), pages 1309-19, September.
    3. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
    4. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
    5. George Kapetanios & Yongcheol Shin, 2002. "GLS Detrending for Nonlinear Unit Root Tests," Working Papers 472, Queen Mary University of London, School of Economics and Finance.
    6. n/a, 2001. "Balance of payments prospects in EMU," NIESR Discussion Papers 164, National Institute of Economic and Social Research.
    7. Cheung, Yin-Wong & Lai, Kon S, 1995. "Lag Order and Critical Values of the Augmented Dickey-Fuller Test," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 277-80, July.
    8. Schmidt, Peter & Phillips, C B Peter, 1992. "LM Tests for a Unit Root in the Presence of Deterministic Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 257-87, August.
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