Persistence in real exchange rate convergence
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Dosyalar
Tarih
2014-02
Yazarlar
Dergi Başlığı
Dergi ISSN
Cilt Başlığı
Yayıncı
Walter de Gruyter GmbH
Erişim Hakkı
info:eu-repo/semantics/openAccess
Özet
In this paper we use a long memory framework to examine the validity of the Purchasing Power Parity (PPP) hypothesis using both monthly and quarterly data for a panel of 47 countries over a 50 year period (1957-2009). The analysis focuses on the long memory parameter d that allows us to obtain different convergence classifications depending on its value. Our analysis allows for the presence of smooth structural breaks and it does not rely on the use of a benchmark. Overall the evidence strongly points to the presence of a long memory process, where 0.5 < d < 1. The implication of our results is that we find long memory mean reverting convergence, something that is also consistent with Pesaran, M. H., R. P. Smith, T. Yamagata, and L. Hvozdyk. 2009. "Pairwise Tests of Purchasing Power Parity." Econometric Reviews 28: 495-521. In explaining the speed of convergence as captured by the estimated long memory parameter d we find impediments to trade such as distance between neighboring countries and sticky prices to be mainly responsible for the slow adjustment of real exchange rates to PPP rather than nominal rates for all country groups but Asia, where the opposite is true.
Açıklama
Anahtar Kelimeler
Purchasing Power Parity, Real Exchange Rate, Balassa-Samuelson Effect, Long memory, Pair-wise approach, Purchasing power parity
Kaynak
Studies in Nonlinear Dynamics and Econometrics
WoS Q Değeri
Q2
