Unit Roots, Level Shifts and Purchasing Power Parity
18 Pages Posted: 3 Aug 1998
Date Written: August 27, 1997
In this paper we analyse the unit root hypothesis when the variable being studied exhibits two changes in its mean. To that end, we design a new statistic which tests for the joint hypothesis that the autoregressive parameter is 1 and that the parameters associated with the structural breaks that appear under the alternative hypothesis are 0. The use of this statistic shows that the real exchange rate of the US dollar with the currencies that are closely linked to the German Mark are stationary around two changes in the mean for the 1974: 1-1995: 4 sample.
JEL Classification: C22, F31
Suggested Citation: Suggested Citation