LONG MEMORY AND PERSISTENCE IN DOLLAR-BASED REAL EXCHANGE RATES

2004 ◽  
Vol 07 (01) ◽  
pp. 31-44
Author(s):  
FOTIOS SIOKIS ◽  
CHRIS CHRISTODOULOU
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Power Parity ◽  
Common View ◽  
Bretton Woods ◽  
Long Run ◽  
Exchange Rate Changes ◽  
Individual Series ◽  
Series Technique

A common view among recent studies on purchasing power parity is that the post-Bretton Woods period is far too short to reveal any significant parity reversion in individual series of real exchange rates. The answer depends on the statistical techniques being used. This study uses alternative econometric time-series technique, which does not require long sample sizes, and reports strong evidence of mean reversion in dollar-based real exchange rates. Further analysis of the estimated impulse responses indicates that the persistence in real exchange rate changes is difficult to detect because the short and long run dynamics interact in such a way that the impulse response weights exhibit a rapid decay.

scholarly journals Productivity Shocks And Real Exchange Rates In The Long-Run: Evidence For The G3 And EU Economies

2011 ◽  
Vol 6 (10) ◽  
Author(s):  
Ordean Olson
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Empirical Support ◽  
The European Union ◽  
Power Parity ◽  
Productivity Shocks ◽  
Exchange Rate Fluctuations ◽  
Long Run ◽  
Equilibrium Relationships

This paper analyses the relationship between productivity and real exchange rates in Japan, United States, Germany and the European Union. Prior studies have revealed that productivity shocks have a minimum effect on real exchange rate fluctuations. This paper shows that productivity shocks account for most of the long-run fluctuations in the real exchange rates when long-run equilibrium relationships of the fundamental variables are considered. This would support empirical support of the Balassa Samuelson model where the main sources of long-run deviations for purchasing power parity are the differences in relative productivity.

scholarly journals International Evidence on Purchasing Power Parity: A Study of High and Low Inflation Countries

2021 ◽  
Vol 4 (3) ◽  
pp. p1
Author(s):  
Mehdi Monadjemi ◽  
John Lodewijks
Keyword(s):  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Purchasing Power ◽  
Power Parity ◽  
Long Run ◽  
High Inflation ◽  
Annual Time Series ◽  
Exchange Rate Changes ◽  
The Relationship ◽  
Annual Time

The purpose of this article is to select a sample of low inflation countries and high inflation countries and examine the long run validity of the relative Purchasing Power Parity doctrine. We explore the notion that countries with historically low inflation experience strong and stable currency and those with a continuous high inflation face weak and depreciating currencies. After a review of the literature, a theoretical model is developed for the relationship between inflation and exchange rate changes. This is followed by some graphical annual time series and empirical results for selected countries. We find our hypothesis is supported for high inflation countries. We then explore productivity differences and their impact on real exchange rates.

scholarly journals Long Memory and Parity Reversion in Real Exchange Rate

2020 ◽  
Author(s):  
Abd. Ghafar Ismail ◽  
Wahi Ismail
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Long Memory ◽  
Real Exchange Rates ◽  
Power Parity ◽  
Equilibrium Relation ◽  
Long Memory Process ◽  
Long Run ◽  
Floating Exchange Rate

This paper examines the post Bretton Woods experience of the Malaysian Ringgit. In this period, Malaysia moved from a managed to a floating exchange rate environment.We examine persistence in real exchange rates by estimating fractionally integrated ARIMA models and find evidence of long memory, which induces persistence though this long memory need not be associated with a unit root. The results show that three out of four exchange rates being examined display mean reversion. The long memory process re-establishes the Purchasing Power Parity as a meaningful concept of long-run equilibrium relation between the exchange rate and relative prices.

Purchasing Power Parity and the Law of One Price: Evidence from Commodity Prices in Asian Countries

2015 ◽  
Vol 15 (2) ◽  
pp. 231-240 ◽  
Author(s):  
Mohsen Bahmani-Oskooee ◽  
ABM Nasir
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Strong Support ◽  
Commodity Prices ◽  
Law Of One Price ◽  
Purchasing Power ◽  
Power Parity ◽  
Industrial Countries ◽  
The Law

Almost all previous studies that have tested the law of one price or Purchasing Power Parity theory (PPP) have used either real effective exchange rates or bilateral real exchange rates which are constructed using CPI or PPI data. Most of these studies have failed to support the PPP mostly due to aggregation bias. A few recent studies, have, therefore used commodity prices in different countries and have provided strong support for the theory. These studies have mostly used data from industrial countries. In this paper, we use individual prices of 52 retail items from 15 cities in Asia and test for stationarity of the real exchange rate and speed of adjustment. We provide support for PPP in 63% of the cases. We also find that using individual prices lead to faster convergence of real rates toward their PPP values.

scholarly journals Chinese renminbi, Mexican peso U.S. dollar exchange rates and their competitive positions in export markets

2016 ◽  
Vol 11 (1) ◽  
pp. 42-51
Author(s):  
Chu V. Nguyen ◽  
Muhammad Mahboob Ali ◽  
Cory Angert
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Latin American ◽  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Poor Performance ◽  
Power Parity ◽  
Contributing Factors ◽  
Mexican Peso ◽  
Chinese Yuan

Since, in the NAFTA era, the Mexican economy is much more advanced in the manufacturing sector than those of other Latin American countries, Mexico competes directly with China for U.S. imports. This study empirically investigates the behavior of the Mexican peso/Chinese yuan, Mexican peso/U.S. dollar, and Chinese yuan/U.S. dollar real exchange rates to determine whether the exchange rate policies serve as contributing factors to the subpar performance of the Mexican economy. The empirical findings suggest that the Mexican, Chinese, and U.S. real exchange rates, over the sample period, prove consistent with predations of the purchasing power parity theory; therefore, exchange rate policies may not be a contributing factor to the poor performance of the Mexican economy

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