T his paper proposes a new unit root test against the alternative of symmetric or asymmetric exponential smooth transition autoregressive (AESTAR) nonlinearity that accounts for multiple smooth breaks. We provide small sample properties which indicate the test statistics have good empirical size and power. Also, we compared small sample properties of the test statistics with Christop...

This paper examines the role of carry trade and momentum trading strategies and their implications for the magnitude of the forward premium anomaly. The formal analysis uses a logistic smooth transition regression, with transition variables related to the di¤erent currency trading strategies. The hypothesis of uncovered interest parity is found to hold in an upper regime where carry trades appe...

Univariate studies of the hypothesis of unit roots in real exchange rates have yielded consensus point estimates of the half-life of deviations from purchasing power parity (PPP) of between three to five years (Rogoff, 1996). However, conventional least-squares-based estimates of half-lives are biased downward. Accordingly, as a preferred measure of the persistence of real exchange rate shocks ...

We consider model selection facing uncertainty over the choice of variables and the occurrence and timing of multiple location shifts. General-to-simple selection is extended by adding an impulse indicator for every observation to the set of candidate regressors: see Johansen and Nielsen (2009). We apply that approach to a fat-tailed distribution, and to processes with breaks: Monte Carlo exper...

There has been serious suspicion of a spurious rejection of the unit roots in panel studies of PPP due to the failure to control for cross-sectional dependence. This article presents evidence of mean-reversion in industrial country real exchange rates in a set up that accounts naturally for cross-sectional dependence, is invariant to the benchmark currency and capable of detecting against regim...

This paper estimates the speed of the adjustment coefficient in structural error correction models (ECM) and employs a system method for real exchange rates with Hansen and Sargent’s (1980, 1982) IV methods. Empirical results show that the half-lives of purchasing power parity deviations are less than one year in most cases. JEL classification: C22, F31, F41

iran’s economy has experienced an average inflation rate of 18.77 percent during the period of 1979-2010. many economists believe that the budget deficits are one of the main determinants of the chronic and relatively high inflation. this paper investigates the relationship between budget deficits and inflation. dynamics of iran’s monetary sector, based on the three cointegration relations i.e....

The purpose of this study is to investigate the impact of exchange rate misalignment on inflation persistence. For this purpose, Vector Auto Regression method and Markov Switching model is used for quarterly data during 1989:4 -2014:3. The results show that, the impact of liquidity growth and exchange rate misalignment on inflation persistence is positive. On the other hand, GDP growth has a ne...