The Behaviour of the Real Exchange Rate: A Re-examination Using Finite Sample Approach
The results of this paper complement the recent findings of real exchange rates as stationary processes. The standard procedure of applying a battery of unit root tests can be problematic since the tests are sensitive to the specifics of the time-series process. The novelty of the approach we applied in this paper is in emphasizing the information content of the data in distinguishing between the competing processes. Stationary and non-stationary ARIMA processes are fitted to the US/UK real exchange rate series covering 134 years. Artificial data following these two processes are generated, and the small sample distributions of the chosen test statistics (including the most powerful point optimal tests with both the unit root and the stationarity as a null) are computed under each of the two hypotheses. The values of the actual sample statistics are shown to be more likely to come from the stationary process than from the non-stationary one.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Oct 1997|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1716. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.