The yen real exchange rate may be stationary after all
Subtitle: evidence from non-linear unit root tests
By: Georgios Chortareas and George Kapetanios
Contributors: Kapetanios, G. (George); Bank of England
Series: Working paper -- no. 311; Working paper (Bank of England : Online) -- no. 311.
Publisher: Bank of England
Published: 2006
Place of publication: London
Language: eng
Format: [electronic resource] :
Description: "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 behaviour of the yen real exchange rate has most stubbornly 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 autoregressive model (ESTAR) that enhances the power of the tests against mean-reverting non-linear 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 behaviour 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."--Bank of England web site.
Notes: Title from PDF file as viewed on Oct. 16, 2006

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