Do real exchange rates follow a nonlinear mean reverting process in developing countries?

Tobago -1.84 -1.57 Uruguay 0.03 -3.14 * Venezuela -1.64 -1.60 [t.sub.ADF1] and [t.sub.ADF2] are the standard ADF test statistics for the null of stationarity and the null of trend stationarity, respectively, of the variable in the study. [t.sub.NL11] and [t.sub.NL12] are the KSS test statistics for the de-meaned data using the models without and with augmentations, respectively. [t.sub.NL21] and [t.sub.NL22] are the KSS test statistics for the detrended data using the models without and with augmentations, respectively. The 10, 5, and 1% asymptotic critical values for [t.sub.ADF1] are -2.57, -2.86, and -3.43, respectively, and those for [t.sub.ADF2] are -3.12, -3.41, and -3.96, respectively. The 10, 5, and 1% asymptotic critical values for [t.sub.NL11] and [t.sub.NL12] are -2.66, -2.93, and -3.48, respectively, and those for [t.sub.NL21] and [t.sub.NL22] are -3.13, -3.40, and -3.93, respectively, taken from Kapetanios, Shin, and Snell (2003, p. 364). *, **, and *** denote rejection of the null hypothesis at the 10, 5, and 1% significance levels, respectively. Table 5. Mean Reversion of REER and Country Characteristics

Number of

Countries

with the REER

Number of Reverting to a Country Group Countries Constant Mean Openness (%) Least open (<44) 22 6 Moderately less open (44-62) 22 12 Moderately more open (62-85) 22 7 Most open (>85) 22 6 GDP growth (%) Lowest (<0.11) 21 6 Moderately low (0.11-2) 22 8 Moderately high (2-3.65) 22 8 Highest (>3.65) 22 9 Inflation (%) Lowest (< 5.3) 22 9 Moderately low (5.3-11) 21 5 Moderately high (11-23) 21 6 Highest (> 23) 21 10 Nominal exchange rate (log of national currency per SDR) flexibility Lowest (<0.22) 22 5 Moderately low (0.22-0.4) 22 8 Moderately high (0.4-0.92) 22 6 Highest (>0.92) 22 12 Nominal exchange rate (log of national currency per U.S. dollar) flexibility Lowest (<0.2) 22 5 Moderately low (0.2-0.36) 22 9 Moderately high (0.36-0.86) 22 5 Highest (>0.86) 22 12

Number of

Countries

Number of with REER

Countries with the Reverting to a

REER Reverting Constant Mean Country Group to a Trend or to a Trend Openness (%) Least open (<44) 6 12 Moderately less open (44-62) 2 14 Moderately more open (62-85) 3 10 Most open (>85) 2 8 GDP growth (%) Lowest (<0.11) 6 12 Moderately low (0.11-2) 3 11 Moderately high (2-3.65) 2 10 Highest (>3.65) 2 11 Inflation (%) Lowest (< 5.3) 2 11 Moderately low (5.3-11) 3 8 Moderately high (11-23) 4 10 Highest (> 23) 4 14 Nominal exchange rate (log of national currency per SDR) flexibility Lowest (<0.22) 4 9 Moderately low (0.22-0.4) 2 10 Moderately high (0.4-0.92) 3 9 Highest (>0.92) 4 16 Nominal exchange rate (log of national currency per U.S. dollar)

flexibility Lowest (<0.2) 4 9 Moderately low (0.2-0.36) 2 11 Moderately high (0.36-0.86) 3 8 Highest (>0.86) 4 16 Openness is the average of the sum of exports and imports measured as a share of GDP. GDP growth is the average of annual percentage growth rate of PPP-adjusted per capita real GDP. Inflation is the average annual change in CPI. Nominal exchange rate volatility is the standard deviation of the log of the monthly exchange rate. Real effective exchange rate volatility is the standard deviation of the rate used in this study for the unit root tests.