Are real exchange rates nonlinear with a unit root? Evidence on PPP for Italy: a note
Abstract:In this article, we apply the recently developed threshold autoregression model to examine both linearity and stationarity of Italy's real exchange rate vis-à-vis her six trading partner (G6) countries. Our main finding is that Italy's real exchange rate is a nonlinear process that is not characterized by a unit root process for five of six trading partner countries. This provides strong support for purchasing power parity.
Document Type: Research Article
Affiliations: 1: School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, Victoria 3125, Australia 2: Centre for Policy Studies, Monash University, Melbourne, Australia
Publication date: October 1, 2007