Citation

Discussion Paper Details

Please find the details for DP1716 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

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

Author(s): Biing-Shen Kuo and Anne Mikkola

Publication Date: October 1997

Keyword(s): Purchasing Power Parity, Real Exchange Rate and Unit Root

Programme Area(s): International Macroeconomics

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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1716

Bibliographic Reference

Kuo, B and Mikkola, A. 1997. 'The Behaviour of the Real Exchange Rate: A Re-examination Using Finite Sample Approach'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1716