Are real exchange rates nonlinear with a unit root? Evidence on PPP for Italy: a note
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.
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Volume (Year): 39 (2007)
Issue (Month): 19 ()
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