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Doo-Yull Choi, B.-H. Kim, See-Won Kim
We find nonlinear mean reverting tendencies in Southeast Asian currencies by applying the newly developed nonlinear unit-root test by Park and Shintani (200528. Park , JY and Shintani , M . 2005 . Testing for a unit root against smooth transition autogressive models Working Paper No. 05-W10, Vanderbilt University, Nashville, Tennessee View all references). First, with the US dollar as the numeraire currency, we find that 63% of the real exchange rates of Southeast Asian currencies turn out to be stationary. However, with the Japanese yen as the numeraire currency, we find no evidence in favour of Purchasing Power Parity (PPP) for most currencies in Southeast Asia, except for the Korean won and Taiwanese dollar. These findings imply that Southeast Asian currencies may not form a yen-dominated Asian exchange rate system. Second, when the dollar-based real exchange rates of Southeast Asian countries are nonlinear mean reverting, we find that the mean-reverting process could be well described by the Exponential Smooth Transition Autoregressive (ESTAR) model, rather than the Double Threshold Autoregressive (DTAR) or Double Logistic Smooth Transition Autoregressive (DLSTAR) model. Our results are reinforced by impulse response function and forecasting analysis.
