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Are Southeast Asian Real Exchange Rates Mean Reverting?

  • Frédérique Bec

    ()

    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)

  • Songlin Zeng

    (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)

Since the late nineties, both theoretical and empirical analysis devoted to the real exchange rate suggest that their dynamics might be well approximated by nonlinear models. This paper examines this possibility for post-1970 monthly ASEAN-5 data, extending the existing research in two directions. First, we use recently developed unit root tests which allow for more flexible nonlinear stationary models under the alternative than the commonly used Self-Exciting Threshold or Exponantial Smooth Transition AutoRegressions. Second, while different nonlinear models survive the mis-specification tests, a Monte Carlo experiment from generalized impulse response functions is used to compare their relative relevance. Our results i) support the nonlinear mean-reverting hypothesis, and hence the Purchasing Power Parity, in most of the ASEAN-5 countries and ii) point to the Multiple Regime-Logistic Smooth Transition and the Exponantial Smooth Transition AutoRegression models as the most likely data generating processes of these real exchange rates.

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Paper provided by HAL in its series Working Papers with number hal-00685812.

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Date of creation: 07 Feb 2012
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Handle: RePEc:hal:wpaper:hal-00685812
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  1. n/a, 2001. "Balance of payments prospects in EMU," NIESR Discussion Papers 164, National Institute of Economic and Social Research.
  2. Nathan S. Balke & Thomas B. Fomby, 1992. "Threshold cointegration," Research Paper 9209, Federal Reserve Bank of Dallas.
    • Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
  3. Berka, Martin, 2005. "General Equilibrium Model of Arbitrage Trade and Real Exchange Rate Persistence," MPRA Paper 234, University Library of Munich, Germany.
  4. Joon Y. Park & Mototsugu Shintani, 2006. "Testing for a Unit Root against Transitional Autoregressive Models," Levine's Bibliography 321307000000000316, UCLA Department of Economics.
  5. Frédérique Bec & Anders Rahbek & Neil Shephard, 2005. "The Autoregressive Conditional Root (ACR) Model," Working Papers 2005-26, Centre de Recherche en Economie et Statistique.
  6. Frédérique Bec & Alain Guay & Emmanuel Guerre, 2002. "Adaptive Consistent Unit Root Tests Based on Autoregressive Threshold Model," Working Papers 2002-46, Centre de Recherche en Economie et Statistique.
  7. Zurbruegg, R. & Allsopp, L., 2004. "Purchasing power parity and the impact of the East Asian currency crisis," Journal of Asian Economics, Elsevier, vol. 15(4), pages 739-758, August.
  8. Venus Khim-sen Liew & Ahmad Zubaidi Baharumshah & Terence Tai-leung Chong, 2003. "Are Asian Real Exchange Rates Stationary?," International Finance 0307002, EconWPA, revised 01 Nov 2004.
  9. Aggarwal, Raj & Montanes, Antonio & Ponz, Monserrat, 2000. "Evidence of long-run purchasing power parity: analysis of real asian exchange rates in terms of the Japanese yen," Japan and the World Economy, Elsevier, vol. 12(4), pages 351-361, December.
  10. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-79, August.
  11. Doo-Yull Choi & Bong-Han Kim & See-Won Kim, 2011. "Nonlinear mean-reversion in Southeast Asian real exchange rates," Applied Financial Economics, Taylor & Francis Journals, vol. 21(19), pages 1409-1421.
  12. 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.
  13. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
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