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Title: |
Are We Sure That the Real Exchange Rate Follows a Random Walk? A
Reexamination |
| Author: |
Chen, Baizhu;
Tran, Kien C. |
| Author
Affiliation: |
Claremont
Graduate School; U Western Ontario |
| Source: |
International Economic Journal, Autumn 1994, v. 8, no. 3, pp. 33-44 |
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Publication Date: |
Autumn 1994 |
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Abstract: |
This paper re-examines whether the real
exchange rate follows a random walk. We test the null hypothesis of a
unit root against the alternative of stationarity and also the null
hypothesis of stationarity against the alternative of a unit root. The
test proposed by Kwiatkowski, Phillips, Schmidt and Shin (1992) is
modified and applied to the monthly and annual data. While our monthly
series suggest somewhat mixed results, the results of annual data favor
the stationarity hypothesis in our both tests. We conclude that the real
exchange rate may have a long mean-reversion component that the
conventional unit root tests are not powerful enough to detect in a
short span sample. |
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