Investigating smooth breaks in real exchange rates
Keywords:Exchange Rate, Fourier Stationary Test, Middle East Countries, Nonlinearity, Purchasing Power Parity.
AbstractWe investigate the validity of purchasing power parity of 7 Middle East countries over January 1980 to August 2008 by applying the stationary test with a nonlinear Fourier function as proposed by Becker et al. (2006). This test allows us to study the presence of unknown smooth structural breaks and the stationarity of real exchange rates. The empirical results indicate that PPP is not valid for most of these Middle East countries except the Bahrain and Israel.
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