Testing for a unit root in the presence of a nonlinear trend: The case of Australian Reel Exchange Rate
Mübariz Hasanov ()
Econometrics Letters, 2014, vol. 1, issue 1, 10-17
In this paper, we examine stationarity of the Australian real exchange rate (RER). For this purpose, we modify the test of Kapetanios et. al. [Testing for a unit root in the nonlinear STAR framework. Journal of Econometrics 112 (2003) 359-379] to allow for a nonlinear trend function in the data generating process. Using bootstrap techniques, we show that the null hypothesis of unit root can be rejected, providing evidence in favour of PPP proposition for the Australian RER.
Keywords: Purchasing Power Parity; Nonlinearity; Unit Root (search for similar items in EconPapers)
JEL-codes: C12 C22 F31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:bmo:bmoart:v:1:y:2014:i:1:p:10-17
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