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Efficient unit root tests of real exchange rates in the post-Bretton Woods era

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  • Francis Ahking

    (University of Connecticut)

Abstract
We apply the efficient unit root tests of Elliott, Rothenberg, and Stock (1996), and Elliott (1999) to twenty-one real exchange rates using monthly data of the G-7 countries from the post-Bretton Woods floating exchange rate period. Our results indicate that, for eighteen out of the twenty-one real exchange rates, the null hypothesis of a unit root can be rejected at the 10% significance level or better using the the Elliott et al. (1996) test. Using the Elliott (1999) test, we have only nine rejections out of the twenty-one real exchange rates at the 10% significance level or better. We also find no strong evidence to suggest that the use of non-U.S. dollar based real exchange rates tend to produce more favorable result for long-run PPP than the use of U.S. dollar based real exchange rates as Lothian (1998) has concluded.

Suggested Citation

  • Francis Ahking, 2003. "Efficient unit root tests of real exchange rates in the post-Bretton Woods era," Economics Bulletin, AccessEcon, vol. 6(7), pages 1-12.
    • Handle: RePEc:ebl:ecbull:eb-03f30004
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    2. Sofiane H. Sekioua, 2004. "Real interest parity (RIP) over the 20th century: New evidence based on confidence intervals for the dominant root and half-lives of shocks," Money Macro and Finance (MMF) Research Group Conference 2004 91, Money Macro and Finance Research Group.

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    Keywords

    Efficient unit root tests Purchasing power parity;

    JEL classification:

    • F3 - International Economics - - International Finance
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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