Are real exchange rates nonlinear with a unit root? Evidence on PPP for Italy: a note

摘要

In this article, we apply the recently developed threshold autoregression model to examine both linearity and stationarity of Italy's real exchange rate vis-a-vis her six trading partner (G6) countries. Our main finding is that Italy's real exchange rate is a nonlinear process that is not characterized by a unit root process for five of six trading partner countries. This provides strong support for purchasing power parity.