The European Union currencies and the US dollar: from post-Bretton-Woods to the Euro

Structural Breaks, Inflation and Interest Rates: Evidence from the G7 Countries

“…We have taken all of the possible combinations of five and six countries, and the values of the CIPS* statistic always allows the rejection of the null hypothesis, the average p-value being lower than 0.01 Thus, this lack of evidence against the null hypothesis matches the results of Constantini and Lupi (2007) [40] and Chang (2007, 2008) [41,42], who reject the presence of a unit root in the inflation rate for different sample sizes of OECD countries using the LM (Lagrange Multiplier) tests proposed in Strazicich (2003, 2013) [43,44], which consider the presence of broken trends in the evolution of these variables. These statistics can also provide evidence against the unit root null hypothesis for the nominal interest rates, as is reflected in Gadea et al (2009) [45]. Thus, the global consideration of all of this evidence leads us to an analysis of the Fisher effect using I(0) variables instead of the much more common approach of using I(1) variables.…”

Purchasing Power Parity and the European single currency: Some new evidence

“…They confirm that especially the former event had an important impact on the stationarity of real exchange rates in the Euro Area, since strong evidence in favour of PPP is detected after 1992. Gadea et al (2004), using the ADF procedure, as well as unit root tests with structural breaks, study the evolution of the US dollar real exchange rate vis a vis the EU currencies during the recent floating regime, before and after the birth of the euro, over the period . They argue that the omission of some structural breaks which affect the behaviour of the real exchange rates may cause the unit root hypothesis to be accepted, resulting in the apparent lack of evidence in support of PPP and allow for three breaks; the first at the beginning of the 1980's, the second around 1985, while the third break appearing in 1996.…”

Smooth breaks and non-linear mean reversion: Post-Bretton Woods real exchange rates

“…This test, however, shares some of the shortcomings of panels tests discussed above and also requires a common pattern of breaks across cross-sectional units. Following a similar line of argument, Gadea et al (2004) test for unit roots on post-Bretton-Woods quarterly RER data for 14 EU countries using multiple breaks. They reject the unit root null in six countries using the 1974-1996 sample but only when the structural break is allowed to be permanent (quasi-PPP).…”