Testing seasonal mean-reversion in the real exchange rates: An application of nonlinear IV estimator

Recent panel unit root tests for PPP usually ignore seasonality, which may generate unknown effects on cross-sectional dependencies. Chang [Chang Y., 2002. Nonlinear IV unit root tests in panels with cross-sectional dependency. Journal of Econometrics 110, 261-292] proposed a nonlinear IV estimator removing cross-sectional dependencies asymptotically. We extend it to test seasonal panel unit root in the form of Hylleberg et al. [Hylleberg, S., Engle, R.F., Granger, C.W.J., Yoo, B.S., 1990. Seasonal integration and cointegration. Journal of Econometrics 44, 215-238]. The empirical robustness of the statistic to seasonality is confirmed.