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Are real exchange rates mean reverting? Evidence from a panel of OECD countries

By Korap Levent

Abstract

In our article we employ some contemporaneous panel unit root tests (Maddala and Wu, 1999; Im et al., 2003) to examine whether the real exchange rates are mean reverting. Considering a panel of 26 OECD countries from 1987 to 2006 both using monthly and quarterly observations, we find that assuming a panel framework significantly increases the power of unit root tests. As a result, we find that the nonstationarity of the real exchange rate has strongly been rejected in favour of giving support to the purchasing power parity.Real Exchange Rates ; Panel Unit Root Tests ; OECD Economies ;

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