Are bilateral real exchange rates stationary? Evidence from Lagrange multiplier unit root tests for India

The paper examines the stationarity of India’s real exchange rate vis-a` -vis 16 of its major trading partner countries for the period 1960–2000. Application of the conventional ADF unit root test, the Lagrange multiplier (LM) unit root test with one structural break, and the LM unit root test with two structural breaks provides evidence that India’s exchange rate vis-a` -vis 15 out of 16 countries is stationary, implying support for purchasing power parity.<br />