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Tests for symmetric and asymmetric nonlinear mean reversion in real exchange rates.

By R. Sollis, S. J. Leybourne and P. Newbold


New tests, based on smooth transition autoregressive models, for mean reversion in time series of real exchange rates are proposed. One test forces mean reversion to be symmetric about the integrated process central case, while the other permits asymmetry. The tests are applied to monthly series of seventeen real exchange rates against the U.S. dollar and fourteen against the deutsche mark. They reveal stronger evidence against the unit root null hypothesis than does the usual Dickey-Fuller test

Topics: Foreign exchange rates, Mathematical models.
Publisher: Ohio State University Press
Year: 2002
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