The Long-Run Behavior of the Real Exchange Rate: A Reconsideration
AbstractUsing a new statistical test, this paper provides empirical evidence that the real exchange rate is not a random walk. If the real exchange rate were a random walk, deviations from purchasing power parity could be expected to become unbounded as the forecast horizon became longer. Recently, Christopher A. Sims proposed a test based on Bayesian posterior odds ratios that is designed to discriminate between a unit root and a large but stationary autocorrelation coefficient. This paper applies the Sims test to real exchange rate data for six industrial countries. The results reject the random walk hypothesis. Copyright 1992 by Ohio State University Press.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 24 (1992)
Issue (Month): 1 (February)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
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- Lucio Sarno & Mark P. Taylor, 2002.
"Purchasing Power Parity and the Real Exchange Rate,"
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- Sarno, Lucio & Taylor, Mark P, 2001. "Purchasing Power Parity and the Real Exchange Rate," CEPR Discussion Papers 2913, C.E.P.R. Discussion Papers.
- Rey, Serge & Varachaud, Pascal, 2000.
"Le comportement des taux de change réels européens de la fin Bretton Woods à l’adoption de l’euro
[The behavior of European real exchange rates from the Bretton Woods system end to the adopt," MPRA Paper 49502, University Library of Munich, Germany.
- Mariam Camarero & Cecilio Tamarit, 1996. "Cointegration and the PPP and the UIP hypotheses: An application to the Spanish integration in the EC," Open Economies Review, Springer, vol. 7(1), pages 61-76, January.
- Goldberg, Lawrence G. & Gosnell, Thomas F. & Okunev, John, 1997. "Purchasing power parity: Modeling and testing mean reversion," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 949-966, July.
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