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Are real exchange rates nonlinear with a unit root? Evidence on PPP for Italy: a note

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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

DOI: http://dx.doi.org/10.1080/00036840600606369

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

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