Real Exchange Rate Stationarity in Managed Floats

The paper tests for mean-reversion in real exchange rates for India during the recent float period. Using unit root tests with improved power, we test for stationarity of the real exchange rate, using several definitions of the real exchange rate. We also conduct cointegration and variance ratio tests to complement the evidence from unit root tests. We find evidence of meanreversion in the real exchange rate series constructed with the consumer price index as deflator, as well as for a series constructed using the ratio of wholesale and consumer price indices to proxy for the shares of tradable and non-tradable goods.