Are Real Exchange Rates Nonlinear or Nonstationary? Evidence from a New Threshold Unit Root Test

Başçı, Erdem; Caner, Mehmet

doi:10.2202/1558-3708.1273

Cited by 10 publications

(6 citation statements)

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“…Following Basci and Caner (2005), Bec et al (2003) and , the half-life is estimated as: h 0.5 ¼ ln(0.5)/ln(1 þ r) where (1 þ r) represents the root of each regime. Using a delta method, a two-sided confidence interval for the half-life is 10 :…”

Section: Linearity Tests: the Tar Modelmentioning

confidence: 99%

Real interest parity (RIP) over the 20th century: New evidence based on confidence intervals for the largest root and the half-life

Sekioua¹

2008

Journal of International Money and Finance

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Section: Linearity Tests: the Tar Modelmentioning

confidence: 99%

Real interest parity (RIP) over the 20th century: New evidence based on confidence intervals for the largest root and the half-life

Sekioua¹

2008

Journal of International Money and Finance

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“…Standard unit root tests that assume linear adjustment have impaired power if adjustment is nonlinear. Baum et al (2001), Taylor et al (2001), Kapetanios et al (2003), and Basci and Caner (2005) all report evidence in favour of nonlinear adjustment towards PPP.…”

Section: Introductionmentioning

confidence: 98%

Real exchange rates may have nonlinear trends

Cushman

2007

Int. J Fin Econ

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The unit root null is tested against possible nonlinear-trend stationarity for 13 US and German bilateral real exchange rates over the floating exchange rate period. Eight tests specified with nonlinear trends are applied. Simulations are used to determine individual and joint significance levels and to help interpret the results. Unit roots can be rejected for a number of the exchange rates, and nonlinear-trend stationarity appears more plausible than mean or linear-trend stationarity as the alternative. In several cases, estimates of the trends support the nonlinear-trend conclusion with statistical and economic significance. Thus, purchasing power parity is probably violated, but real exchange rates have meaningful long-run equilibrium values. Copyright © 2007 John Wiley & Sons, Ltd.

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“…From a theoretical perspective, there is no sound reason to assume that economic systems are intrinsically linear (see Barnett and Serletis, 2000). In fact, numerous studies have empirically demonstrated that financial time series, such as exchange rate, exhibit nonlinear dependencies (see Basci and Caner, 2005;Norman and Phillips, 2009;Lee and Chou, 2013). In addition, substantive evidence from the Monte Carlo simulations in Bierens (1997Bierens ( , 2004 has indicated that, inherent to the conventional Johansen cointegration framework, there is a misspecification problem when the true nature of the adjustment process is nonlinear and that the speed of adjustment varies with the magnitude of the disequilibrium.…”

Section: Literature Reviewmentioning

confidence: 99%

Are there bubbles in Chinese RMB–dollar exchange rate? Evidence from generalized sup ADF tests

et al. 2015

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This article uses recently developed generalized sup ADF (GSADF) unit root tests into the analysis of nominal RMB-dollar exchange rates bubbles. Based on the results from the GSADF tests, we find strong evidence of explosive behaviour in the nominal exchange rate and investigate two bubbles there. The first bubble is during 2005-2006 which is determined neither by the relative prices of traded goods nor the relative price of nontraded goods. The second bubble busts in 2008 during subprime crisis period, and which is determined by the relative prices of traded goods but not the relative price of nontraded goods. There is no bubble before 2005 as the exchange rate is under fixed regime. As for this result, some expansionary monetary and fiscal policies are required in China since these are the most efficient and effective under a bubble burst scenario.

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Are Real Exchange Rates Nonlinear or Nonstationary? Evidence from a New Threshold Unit Root Test

Cited by 10 publications

References 0 publications

Real interest parity (RIP) over the 20th century: New evidence based on confidence intervals for the largest root and the half-life

Real interest parity (RIP) over the 20th century: New evidence based on confidence intervals for the largest root and the half-life

Real exchange rates may have nonlinear trends

Are there bubbles in Chinese RMB–dollar exchange rate? Evidence from generalized sup ADF tests

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