Abstract

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.

Recommended Citation

Erdem Basci and Mehmet Caner (2005) "Are Real Exchange Rates Nonlinear or Nonstationary? Evidence from a New Threshold Unit Root Test", Studies in Nonlinear Dynamics & Econometrics: Vol. 9: No. 4, Article 2.
http://www.bepress.com/snde/vol9/iss4/art2

Related Files

basci_datacode.zip (65 kB)
Data and code