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Are real exchange rates nonlinear with a unit root? Evidence on PPP for Italy: a note

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  • Paresh Kumar Narayan
  • Seema Narayan

Abstract

In this article, we apply the recently developed threshold autoregression model to examine both linearity and stationarity of Italy's real exchange rate vis-a-vis her six trading partner (G6) countries. Our main finding is that Italy's real exchange rate is a nonlinear process that is not characterized by a unit root process for five of six trading partner countries. This provides strong support for purchasing power parity.

Suggested Citation

  • Paresh Kumar Narayan & Seema Narayan, 2007. "Are real exchange rates nonlinear with a unit root? Evidence on PPP for Italy: a note," Applied Economics, Taylor & Francis Journals, vol. 39(19), pages 2483-2488.
  • Handle: RePEc:taf:applec:v:39:y:2007:i:19:p:2483-2488
    DOI: 10.1080/00036840600606369
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    Cited by:

    1. Yutaka Kurihara, 2009. "Is Purchasing Power Parity Hypothesis Reasonable from the View of Trade Blocks and Currency Zones?," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 3-14.

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