Are real exchange rates more likely to be stationary during the fixed nominal exchange rate regimes?

Abstract

By testing for the presence of multiple changes in persistence at a priori unknown dates in the real exchange rates spanning more than 100 years over different nominal exchange rate regimes, this note shows that the real exchange rates are more likely to be stationary during the fixed nominal exchange rate regimes than during the floating ones.

Acknowledgements

This work was supported by research programme 2007 of Kookmin University in Korea. I would like to thank Tae-Hwan Kim for his GAUSS program and Alan M. Taylor for his data series.

Notes

¹ According to Cheung and Lai (2000), PPP is likely to be held better for developing countries than for developed ones; see also Alba and Papell (2007).

² Edison and Klovland (1987, p. 319) note that the floating period of 1914–1928 in Norway contrasts sharply with the rest of their sample period of 1874–1971.

³ According to Sabaté et al. (2003), the Spanish exchange rate regime was a floating one until 1931.