Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108580
Authors: 
Holmes, Mark J.
Otero, Jesús
Panagiotidis, Theodore
Year of Publication: 
2011
Series/Report no.: 
Koç University-TÜSİAD Economic Research Forum Working Paper Series 1135
Abstract: 
The stationarity of OECD real exchange rates over the period 1972-2008 is tested using a panel of twenty six member countries. The methodology followed stems from the need to meet several key concerns: (i) the identification of which panel members are stationary; (ii) the presence of cross-sectional dependence among the countries in the panel; and (iii) the identification of potential structural breaks that might have occurred at different points in time. To address these concerns, we employ a recent test that examines the time series properties of the data within a panel framework, namely the Hadri and Rao (2008) panel stationarity test. The real exchange rates of the twenty six OECD countries are found to be stationary when considered as a panel, but only after allowing for endogenously-determined structural breaks and cross section dependence. We also find that once these structural breaks are removed from the underlying series, the half-life of shocks to the real exchange rate is much shorter than has been calculated in earlier studies.
Subjects: 
Heterogeneous dynamic panels
purchasing power parity
mean reversion
panel stationarity test
JEL: 
F31
F33
G15
Document Type: 
Working Paper

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