Nonparametric cointegration analysis of real exchange rates

This study indirectly addresses the issue of potential nonlinearities in real exchange rate adjustment for 18 OECD economies 1973–1998 using recent developments in the theory of nonparametric cointegration. While the standard Johansen tests yield mixed evidence, the results from a new nonparametric approach are clearly supportive of real exchange rate stationarity. Since the latter approach allows for a relatively general data-generating process, the findings are consistent with nonlinear mean reversion.