Nonlinear mean-reversion in Southeast Asian real exchange rates

Abstract

We find nonlinear mean reverting tendencies in Southeast Asian currencies by applying the newly developed nonlinear unit-root test by Park and Shintani (2005). First, with the US dollar as the numeraire currency, we find that 63% of the real exchange rates of Southeast Asian currencies turn out to be stationary. However, with the Japanese yen as the numeraire currency, we find no evidence in favour of Purchasing Power Parity (PPP) for most currencies in Southeast Asia, except for the Korean won and Taiwanese dollar. These findings imply that Southeast Asian currencies may not form a yen-dominated Asian exchange rate system. Second, when the dollar-based real exchange rates of Southeast Asian countries are nonlinear mean reverting, we find that the mean-reverting process could be well described by the Exponential Smooth Transition Autoregressive (ESTAR) model, rather than the Double Threshold Autoregressive (DTAR) or Double Logistic Smooth Transition Autoregressive (DLSTAR) model. Our results are reinforced by impulse response function and forecasting analysis.purchasing power parity, nonlinear unit root test, Asian real exchange rates, dollar and yen,

Are Southeast Asian real exchange rates mean reverting?

“…First, Liew et al (2004) apply the unit root test developed by Kapetanios et al (2003) for a nonlinear Exponential Smooth Transition AutoRegression (ESTAR) stationary alternative to 11 Asian real exchange rates and reject the null for eight U.S. Dollar based rates data. More recently, Choi et al (2011) use the inf − t unit root test proposed in Park and Shintani (2005) against various nonlinear stationary alternatives including Threshold AutRegression (TAR) and Logistic Smooth Transition AutoRegression (LSTAR) models. When the U.S. dollar is the numeraire currency, they find that 63% of the real exchange rates of Southeast Asian currencies are consistent with nonlinear stationary processes.…”

Satın Alma Gücü Paritesi Teorisinin Geçerliliği: G7 Örneği

“…Purchasing Power Parity (PPP) Im, Pesaran and Shin (1997), Maddala and Wu (1999), Levin et al (2002), Hadri (2000) and Choi (2001) Choi 2002, Phillips and Sul 2003, Bai and Ng 2004, Moon and Peron (2004. To provide functionality, …”

OECD Ülkelerinde Satın Alma Gücü Paritesinin İncelenmesi: Doğrusal Olmayan Yapısal Kırılmalı Birim Kök Testinden Yeni Kanıtlar

“…5 See Perron (2005) for a detailed review of the issue of structural breaks. 6 Chang et al (2006) use Leybourne et al (1998) Bahmani- Oskooee et al, 2007;Sollis, 2009;Bec et al, 2010;Kruse, 2011;Emirmahmutoglu & Omay, 2014, among others 7 ) and the emergence of nonlinear approaches on testing PPP hypothesis (Sarantis, 1999;Sarno, 2000;Taylor et al, 2001;Baum et al, 2001;Alba & Park, 2005;Assaf, 2006;Cuestas, 2009;Kim & Moh, 2010;Choi et al, 2011;Zhou & Kutan, 2011;Chang et al, 2012a;Bec & Zeng, 2013;Cuestas & Regis, 2013;Bahmani-Oskooee et al, 2016;Karagoz & Sarac, 2016;Vasconcelos & Junior, 2016). Many studies also argue for investigating nonlinearity and structural break simultaneously for PPP because they are not mutually exclusive (Sollis, 2004;Christopoulos & León-Ledesma, 2010;Omay et al, 2018Omay et al, , 2020Nazlioglu et al, 2022) 7 Nonlinear unit root test of Kapetanios et al (2003) has been very popular among researchers and an increasing number of studies are devoted to test PPP using this testing procedure.…”