European Parliament Library

Parity Reversion in Real Exchange Rates :, Fast, Slow or Not At All?, C. McDermott, Paul Cashin

Contributor
Abstract
Consensus estimates put the half-life of deviations from purchasing power parity (PPP) at about four years (Rogoff, 1996). However, conventional least squares estimates of half-lives are biased downward. Accordingly, as a preferred measure of the persistence of real exchange rate shocks, this study uses median-unbiased estimators of the half-life of deviations from parity, which correct for the downward bias of conventional estimators. The paper tests for PPP using real effective exchange rate data for 90 developed and developing countries in the post-Bretton Woods period. Support for PPP is found, as the majority of countries experience finite deviations of real exchange rates from parity. The speed of parity reversion is found to be typically much faster for developed countries than for developing countries, and to be considerably faster for countries with flexible nominal exchange rate regimes in comparison with countries having fixed nominal exchange rate regimes
Table Of Contents
""Contents""; ""I. INTRODUCTION""; ""II. BIASED AND UNBIASED MEASURES OF PARITY REVERSION SPEEDS""; ""III. DATA""; ""IV. EMPIRICAL RESULTS""; ""V. WHAT IS CAUSING THE HETEROGENEOUS PERSISTENCE OF DEVIATIONS FROM PARITY?""; ""VI. CONCLUSION""; ""References""
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (43 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781451900347

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