BREAKING TREND FUNCTIONS IN REAL EXCHANGE-RATES - EVIDENCE FROM 17 OECD COUNTRIES

This paper tests for unit roots in dollar-based and DM-based real exch ange rates using quarterly data (from 1957:i to 1995:iv) for seventeen OECD countries. The results show that the unit root hypothesis cannot be rejected even if allowance is made for the possibility of a one-ti me change in the mean of the series at an unknown point in time. This is evidence against the hypothesis of absolute long-run purchasing pow er parity over this period.