Are Southeast Asian real exchange rates mean reverting?

Since the late nineties, both theoretical and empirical analysis devoted to the real exchange rate suggest that their dynamics might be well described by nonlinear models. This paper examines this possibility for post-1970 monthly ASEAN-5 data, extending the existing research in two directions. First, we use recently developed unit root tests which allow for more flexible nonlinear stationary models under the alternative than the commonly used Self-Exciting Threshold or Exponential Smooth Transition AutoRegressions. Second, while different nonlinear models survive the mis-specification tests, a Monte Carlo experiment from generalized impulse response functions is used to compare their relative relevance. Our results (i) support the nonlinear mean-reverting hypothesis, and hence the Purchasing Power Parity, in most of the ASEAN-5 countries and (ii) point to the Multiple Regime-Logistic Smooth Transition and the Exponential Smooth Transition AutoRegression models as the most likely data generating processes of these real exchange rates.