The confusing time-series behaviour of real exchange rates: Are asymmetries important?

Purchasing power parity in LDCs: An empirical investigation

“…The results also indicate that real rates are generally mean reverting for LDCs, thus the sample-selection bias hypothesis (SBH) does not seem to be important anymore as far as LDCs are concerned. The findings of this paper concerning long-run PPP in LDCs support those of Bahmani-Oskooee et al (2008;2009), Kargbo (2006, Aggarwal and Simmons (2002), Arize, Malindretos, and Grivoyannis (2004), Arize, Malindretos and Nam (2010), Salehizadeh and Taylor (1999) and Liu (1992). Our results corroborate the conclusion in Taylor and Taylor (2004:154-155) concerning the PPP debate that there may be a significant mean reversion or real exchange rates, while there may be factors causing the equilibrium real exchange rate to shift over time.…”

“…It seems prudent to compare our findings with those reported in Bahmani-Oskooee et al (2008;2009). Our empirical evidence corroborates some of their findings.…”

“…Important questions such as whether exchange rates adjust to equalize purchasing power across test for inference purposes (Gunst & Mason 1980: 167-206). Therefore, an appealing aspect of our study is that there is no "one-size-fits-all" approach because a different model may be required to capture the individual nuances of the different countries' data sets (McMillan 2009). …”

“…As a further extension, we note that, since 2005, developing countries have experienced numerous changes such as food, fuel crises and price volatility; falling export revenues and commodity prices; falling exchange rate reserves, rising poverty rates, global recession, significant debt cancelations, drying-up of credit, investment and private capital market; and slower growth rates, to mention but a few. [See Commission of the European Communities (2009) and World Bank (1996, 2005 for more complete explanation.] It seems prudent to determine the stability of earlier results using our longer and more recent data.…”

Nonlinear approaches in testing PPP: Evidence from Southern African development community

“…Recent studies have focused on exploring the nonlinear behaviour of real exchange rates (Aksoy and Leon-Ledesma, 2007, McMillan, 2007and Mokoena et al, 2009). The literature further identifies factors that lead to the nonlinear nature of real exchange rate series such as transaction costs in various markets and policy intervention or the actions of market agents in financial speculation and arbitrage behaviour (McMillan, 2007).…”