Smooth structural breaks and the stationarity of the yen real exchange rates

Su Zhou and Ali Kutan

Applied Economics, 2014, vol. 46, issue 10, 1150-1159

Abstract: This article examines and solves an interesting paradox in the literature that the tests for purchasing power parity (PPP) based on the yen real exchange rates (RERs) refute the PPP hypothesis more often than those with other major currency-based RERs, and the evidence is sensitive to the sample period used. Using a new empirical methodology accounting for both nonlinearity and multiple smooth temporary breaks in the data, we show that the puzzling finding is due to the failure to take into account the long but temporary large rise and fall in the yen RERs. The results illustrate that the yen RERs in the post-Bretton Woods period are likely mean reverting with linear or nonlinear adjustment toward large, long swing type of infrequent smooth temporary changes around constant equilibrium values, supporting the validity of PPP and resolving the paradox.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2013.868587 (text/html)
Access to full text is restricted to subscribers.

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:taf:applec:v:46:y:2014:i:10:p:1150-1159

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2013.868587

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().