Are real exchange rates nonlinear with a unit root? Evidence on PPP for Italy: a note

Paresh Narayan () and Seema Narayan ()

Applied Economics, 2007, vol. 39, issue 19, 2483-2488

Abstract: In this article, we apply the recently developed threshold autoregression model to examine both linearity and stationarity of Italy's real exchange rate vis-a-vis her six trading partner (G6) countries. Our main finding is that Italy's real exchange rate is a nonlinear process that is not characterized by a unit root process for five of six trading partner countries. This provides strong support for purchasing power parity.

Date: 2007
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DOI: 10.1080/00036840600606369

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