DO EXCHANGE-RATES FOLLOW A RANDOM-WALK PROCESS IN MIDDLE-EASTERN COUNTRIES

In this note we employ the KPSS test in addition to the ADF test to de termine whether the real effective exchange rates in Middle Eastern co untries follow a random walk process or they are stationary. While in most cases the KPSS test supported the stationary of the real effectiv e rates, thus the PPP, the ADF test did not. The failure to support th e PPP by the ADF test is said to be due to its low power. (C) 1998 Els evier Science S.A.