Kruse, Robinson; Frömmel, Michael; Menkhoff, Lukas; … - School of Economics and Management, University of Aarhus - 2009
This research points to the serious problem of potentially misspecified alternative hypotheses when testing for unit roots in real exchange rates. We apply a popular unit root test against nonlinear ESTAR and develop a Markov Switching unit root test. The empirical power of these tests against...