The Yen Real Exchange Rate May Be Stationary after All: Evidence from Nonlinear Unit-Root Tests

Georgios Chortareas and George Kapetanios

No 484, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: The empirical literature that tests for purchasing power parity (PPP) by focusing on the stationarity of real exchange rates has so far provided, at best, mixed results. The yen real exchange rate behavior, as compared to other major currencies, has most stubornly challenged the PPP hypothesis and deepened this puzzle. This paper contributes to this discussion by providing new evidence on the stationarity of bilateral yen real exchange rates. We employ a non-linear version of the Augmented Dickey-Fuller test, based on an exponentially smooth-transition autogregressive model (ESTAR) that enhances the power of the tests against mean-reverting nonlinear alternative hypotheses. Our results suggest that the bilateral yen real exchange rates against the other G7 and Asian currencies were mean reverting during the post-Bretton Woods era. Thus, the real yen behavior may not be so different after all but simply perceived to be so due to the use of a restrictive alternative hypothesis in previous tests.

Keywords: PPP; Yen; Real exchange rates; Nonlinear models; ESTAR models (search for similar items in EconPapers)
JEL-codes: C23 F31 (search for similar items in EconPapers)
Date: 2003-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.qmul.ac.uk/sef/media/econ/research/wor ... 2003/items/wp484.pdf (application/pdf)

Related works:
Working Paper: The yen real exchange rate may be stationary after all: evidence from non-linear unit root tests (2006)
Journal Article: The Yen Real Exchange Rate may be Stationary after all: Evidence from Non‐linear Unit‐root Tests (2004)
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:qmw:qmwecw:484

Access Statistics for this paper

More papers in Working Papers from Queen Mary University of London, School of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Nicholas Owen ( this e-mail address is bad, please contact ).