Are real exchange rates mean reverting? Evidence from a panel of OECD countries
APPLIED ECONOMICS LETTERS, vol.16, no.1, pp.23-27, 2009 (SSCI)
- Publication Type: Article / Article
- Volume: 16 Issue: 1
- Publication Date: 2009
- Doi Number: 10.1080/13504850701735773
- Journal Name: APPLIED ECONOMICS LETTERS
- Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
- Page Numbers: pp.23-27
- Istanbul University Affiliated: Yes
Abstract
In our article we employ some contemporaneous panel unit root tests (Maddala and Wu, 1999; Im et al., 2003) to examine whether the real exchange rates are mean reverting. Considering a panel of 26 OECD countries from 1987 to 2006 both using monthly and quarterly observations, we find that assuming a panel framework significantly increases the power of unit root tests. As a result, we find that the nonstationarity of the real exchange rate has strongly been rejected in favour of giving support to the purchasing power parity.