The Behaviour of the Real Exchange Rate: A Re-examination Using Finite Sample Approach

Biing-Shen Kuo and Anne Mikkola

No 1716, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The results of this paper complement the recent findings of real exchange rates as stationary processes. The standard procedure of applying a battery of unit root tests can be problematic since the tests are sensitive to the specifics of the time-series process. The novelty of the approach we applied in this paper is in emphasizing the information content of the data in distinguishing between the competing processes. Stationary and non-stationary ARIMA processes are fitted to the US/UK real exchange rate series covering 134 years. Artificial data following these two processes are generated, and the small sample distributions of the chosen test statistics (including the most powerful point optimal tests with both the unit root and the stationarity as a null) are computed under each of the two hypotheses. The values of the actual sample statistics are shown to be more likely to come from the stationary process than from the non-stationary one.

Keywords: Purchasing Power Parity; Real Exchange Rate; Unit Root (search for similar items in EconPapers)
JEL-codes: C22 C52 F31 F47 (search for similar items in EconPapers)
Date: 1997-10
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1716 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

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:cpr:ceprdp:1716

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1716

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().