Review article

REAL EXCHANGE RATE WITH NONLINEAR THRESHOLD EFFECT

Tsangyao Chang
Hsu-Ling Chang
Chi WeiSu

Abstract

This study applies the threshold autoregressive model proposed by Caner and Hansen (2001) to examine both linearity and stationarity of Germany’s real exchange rate vis-à-vis her 5 trading partner countries. Two main conclusions are drawn. Firstly, the empirical results indicate that Germany’s real exchange is a nonlinear process. Secondly, a unit root in real exchange rate was rejected for most of the cases under study. This result provides strong support for purchasing power parity for Germany relative to their major trading partner countries.

Keywords

Non-linear Threshold Unit-root Test; Linearity and Stationarity; Purchasing Power Parity

Hrčak ID:

104033

URI

https://hrcak.srce.hr/104033

Publication date:

1.6.2013.

Article data in other languages: croatian

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