Abstract
By allowing for multiple changes in persistence, this note shows that the US/UK real exchange rate spanning two centuries is stationary. This result is consistent with the previous one in Lothian and Taylor (Citation1996, Citation2000) and purchasing power parity is a useful approximation in the long run.
Acknowledgement
This work was supported by research program 2006 of Kookmin University in Korea. I would like to thank Tae-Hwan Kim for kindly providing me with his GAUSS program.
Notes
1 An evaluation of the nonlinear models is done in Rapach and Wohar (Citation2003), which is a working paper version of Rapach and Wohar (Citation2006).
2 For simplicity, λT will be used instead of ⌊λT⌋, which denotes the integer part of λT.
3 For 4 ≤ p max ≤ 7, the results are the same. For 0 ≤ p max ≤ 3, the results are even stronger; the first 196 observations up to 1986 are found to be I(0).
4 No testing procedure is available for the estimated regime shift dates in Leybourne et al. (Citation2005).