Abstract
This paper reexamines whether the real exchange rate follows a random walk. We test the null hypothesis of a unit root against the alternative of stationarity and also the null hypothesis of stationarity against the alternative of a unit root. The test proposed by Kwiatkowski. Phillips, Schmidt and Shin (KPSS, 1992) is modified and applied to the monthly and annual data. While our monthly series suggest somewhat mixed results, the results of annual data favor the stationarity hypothesis in our both tests. We conclude that the real exchange rate may have a long mean-reversion component that the conventional unit root tests are not powerful enough to detect in a short span sample. [F31]
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
