Are Real Exchange Rates Nonlinear or Nonstationary? Evidence from a new Threshold Unit Root Test
We analyze the post-float real exchange rates for a group of OECD countries using the newly developed threshold test and tests for unit roots against stationary but nonlinear alternative by Caner and Hansen ( 2001). These tools help us disentangle the nonlinearity from the nonstationarity rigorously for the first time in the literature. After applying the threshold test and unit root tests: we find evidence for non-linearity of exchange rates. Specifically real exchange rates behave like a unit root in a band and when the depreciation or appreciation of the currency against $US exceeds the boundaries of the band , the real exchange rates are mean-reverting. The threshold value is treated as unknown and estimated in the model.
(This abstract was borrowed from another version of this item.)
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Taylor, Mark P. & Peel, David A., 2000. "Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 33-53, February.