Are Real Exchange Rates Non-Stationary? Evidence from a Panel-Data Test

JOURNAL OF MONEY, CREDIT, AND BANKING Vol 28 No 1 February 1995

Posted: 23 Aug 1998

See all articles by Yangru Wu

Yangru Wu

Rutgers University, Newark - School of Business - Department of Finance & Economics

Abstract

It is well documented that real exchange rates between the United States and many industrialized countries in the post- Bretton Woods period are integrated. This result implies that purchasing power parity (PPP) does not hold even as a long-run relationship. This paper demonstrates that the failure to reject the unit-root hypothesis may result from the low power of existing univariate test procedures. I test for unit roots in real exchange rates by employing a more powerful panel-based procedure. Using both CPI and WPI real dollar exchange rate data, I strongly reject the null hypothesis of a unit root. My results provide overwhelming support for the long-run PPP under the current float.

JEL Classification: F31

Suggested Citation

Wu, Yangru, Are Real Exchange Rates Non-Stationary? Evidence from a Panel-Data Test. JOURNAL OF MONEY, CREDIT, AND BANKING Vol 28 No 1 February 1995. Available at SSRN: https://ssrn.com/abstract=6807

Yangru Wu (Contact Author)

Rutgers University, Newark - School of Business - Department of Finance & Economics ( email )

1 Washington Park
Newark, NJ 07102
United States
973-353-1146 (Phone)
973-353-1006 (Fax)

HOME PAGE: http://andromeda.rutgers.edu/~yangruwu

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