What do we know about real exchange rate nonlinearities?

Publikation: Beitrag in Fachzeitschrift › Artikel › Forschung › Peer-Review

Autoren

  • Robinson Kruse
  • Michael Frömmel
  • Lukas Menkhoff
  • Philipp Sibbertsen

Organisationseinheiten

Externe Organisationen

  • Aarhus University
  • Universiteit Gent
Forschungs-netzwerk anzeigen

Details

OriginalspracheEnglisch
Seiten (von - bis)457-474
Seitenumfang18
FachzeitschriftEmpirical economics
Jahrgang43
Ausgabenummer2
Frühes Online-Datum4 Jan. 2011
PublikationsstatusVeröffentlicht - Okt. 2012

Abstract

Nonlinear modeling of adjustments to purchasing power parity has recently gained much attention. However, a huge body of the empirical literature applies ESTAR models and neglects the existence of other competing nonlinear models. Among these, the Markov Switching AR model has a strong substantiation in international finance. Our contribution to the literature is fivefold: First, ESTAR and MSAR models from a unit root perspective are compared. To this end, a new unit root test against MSAR is proposed as the second contribution. Thirdly, the case of misspecified alternatives in a Monte Carlo setup with real world parameter constellations is studied. The ESTAR unit root test is not indicative, while the MSAR unit test is robust. Fourthly, the case of correctly specified alternatives is considered and low power of the ESTAR but not for the MSAR unit root test is observed. Fifthly, an empirical application to real exchange rates suggests that they may indeed be explained by Markov Switching dynamics rather than ESTAR.

ASJC Scopus Sachgebiete

Zitieren

What do we know about real exchange rate nonlinearities? / Kruse, Robinson; Frömmel, Michael; Menkhoff, Lukas et al.
in: Empirical economics, Jahrgang 43, Nr. 2, 10.2012, S. 457-474.

Publikation: Beitrag in Fachzeitschrift › Artikel › Forschung › Peer-Review

Kruse, R, Frömmel, M, Menkhoff, L & Sibbertsen, P 2012, 'What do we know about real exchange rate nonlinearities?', Empirical economics, Jg. 43, Nr. 2, S. 457-474. https://doi.org/10.1007/s00181-010-0431-2
Kruse, R., Frömmel, M., Menkhoff, L., & Sibbertsen, P. (2012). What do we know about real exchange rate nonlinearities? Empirical economics, 43(2), 457-474. https://doi.org/10.1007/s00181-010-0431-2
Kruse R, Frömmel M, Menkhoff L, Sibbertsen P. What do we know about real exchange rate nonlinearities? Empirical economics. 2012 Okt;43(2):457-474. Epub 2011 Jan 4. doi: 10.1007/s00181-010-0431-2
Kruse, Robinson ; Frömmel, Michael ; Menkhoff, Lukas et al. / What do we know about real exchange rate nonlinearities?. in: Empirical economics. 2012 ; Jahrgang 43, Nr. 2. S. 457-474.
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