The purpose of this paper is to investigate the ability of parameter instability tests in regressions with I(1) processes to discriminate between changes in the cointegrating relationship and changes in the marginal distribution of the regressors. Using annual data for the G-7 countries and the...

Using random simulations with artificial data with identical sample characteristics to the long-sample exchange rate data employed by Lothian and Taylor(Lothian, J.R. and Taylor, M.P.(1996). The recent float from the perspective of the past two centuries. Journal of Political Economy 104,...

Recent studies on general equilibrium models with transaction costs show that the dynamics of the real exchange rate are necessarily nonlinear. Our contribution to the literature on nonlinear price adjustment mechanisms is threefold. First, we model the real exchange rate by a Multi-Regime...

This paper examines the long-run validity of purchasing power parity (PPP) for four high-inflation countries. The method of Zivot and Andrews (1992) is employed to detect the time-series behavior of the exchange rates and consumer price indices of these countries. We find that these variables...

This paper proposes a hybrid monetary model of the dollar-yen exchange rate that takes into account factors affecting the conventional monetary model’s building blocks. In particular, the hybrid monetary model is based on the incorporation of real stock prices to enhance money demand stability...

This paper investigates the effects of replacing the consumer price index (CPI) with the wholesale price index (WPI) in the cointegrating international parity relationships found by Juselius and MacDonald (2000). Our empirical analysis outstandingly produced results similar to the ones obtained...

The empirical literature that tests for purchasing power parity (PPP) by focusing on the stationarity of real exchange rates has so far provided, at best, mixed results. The behaviour of the yen real exchange rate has most stubbornly challenged the PPP hypothesis and deepened this puzzle. This...

Interest in the interface of nonstationarity and nonlinearity has been increasing in the econometric literature. The motivation for this development maybe be traced to the perceived possibility that processes following nonlinear models maybe mistakenly taken to be unit root or long-memory...

The study examines whether the long-run validity of PPP holds in some major advanced and developing economies. The study employed the smooth time-varying cointegration (TVC) and time-varying detrended fluctuation analysis (DFA) methodology, and we are not aware of any study that has applied TVC...

This study explores the stationarity of monthly Turkish real exchange rates based on both wholesale price indices and consumer price indices for the period 1990:1-2007:4. While the results from the conventional unit root tests fail to support stationarity of real exchange rates, the unit root...