Real Exchange Rate Dynamics Under the Current Float: A Re-Examination

16 Pages Posted: 20 Sep 2003

See all articles by Michael Bleaney

Michael Bleaney

University of Nottingham - School of Economics

Stephen J. Leybourne

University of Nottingham

Abstract

Augmented Dickey-Fuller regressions on pooled (but not individual) real exchange rates for the post-1973 period consistently reject the unit root null, even after accounting for cross-sectional dependence. The inference that the series is stationary, however, is not necessarily correct, because these tests strongly over-reject the null in certain circumstances, particularly when the series has a stochastic unit root. We find that bilateral real exchange rates against the US dollar have a stochastic unit root. Out-of-sample prediction exercises for an autoregressive model confirm these findings.

Suggested Citation

Bleaney, Michael and Leybourne, Stephen J., Real Exchange Rate Dynamics Under the Current Float: A Re-Examination. Available at SSRN: https://ssrn.com/abstract=416801

Michael Bleaney (Contact Author)

University of Nottingham - School of Economics ( email )

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Stephen J. Leybourne

University of Nottingham ( email )

University Park
School of Economics
Nottingham NG7 2RD
United Kingdom
+44 (0)115 9515478 (Phone)
+44 (0)115 951 4159 (Fax)

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