A Bayesian analysis of the unit root in real exchange rates
We propose a posterior odds analysis of the hypothesis of a unit root in real exchange rates. From a Bayesian viewpoint the random walk hypothesis for real exchange rates is a posteriori as probable as a stationary AR(1) process for four out of eight time series investigated. The French franc/German mark is clearly stationary, while the Japanese yen/US dollar is most likely a random walk. In contrast, classical tests are unable to reject the unit root for any of these series.
|Keywords||Bayesian models, econometrics, inflation models, real exchange rates|
|Persistent URL||dx.doi.org/10.1016/0304-4076(91)90014-5, hdl.handle.net/1765/11240|
Schotman, P.C., & van Dijk, H.K.. (1991). A Bayesian analysis of the unit root in real exchange rates. Journal of Econometrics. doi:10.1016/0304-4076(91)90014-5