Real exchange rates and developing countries

Angelos Kanas

International Journal of Finance & Economics, 2009, vol. 14, issue 3, 280-299

Abstract: As the real exchange rate of developing countries is especially vulnerable to stochastic events, standard unit root tests do not capture such events adequately. Using a Markov switching extension of the ADF test, which incorporates stochastic regime switching, we address the issue of real exchange rate stationarity for 43 developing countries. We find strong statistical evidence that this approach is preferred to the standard ADF for all countries considered. For 36 countries, there is strong evidence of regime-dependent stationarity, namely there is a regime in which the real exchange rate is stationary and another regime in which the real exchange rate is non-stationary. This suggests that over a sample period, there are sub-periods of stationarity and sub-periods of non-stationarity. We identify those sub-periods and assess their average duration and regime persistence. The results, robust to alternative sample periods, indicate that there exists sample-dependence in unit root results in previous studies, and help bridge the gap between conflicting results of these studies. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1002/ijfe.378 Link to full text; subscription required (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ijf:ijfiec:v:14:y:2009:i:3:p:280-299

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

DOI: 10.1002/ijfe.378

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().