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Parity Reversion in Real Exchange Rates: Fast, Slow, or Not at All?

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  • Paul Cashin

    (International Monetary Fund)

  • C. John McDermott

    (International Monetary Fund)

Abstract

This paper tests for purchasing power parity (PPP) using real effective exchange rate data for 90 developed and developing countries in the post-Bretton Woods period. Support for PPP is found, since 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 compared with countries having fixed nominal exchange rate regimes. Copyright 2006, International Monetary Fund

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 53 (2006)
Issue (Month): 1 ()
Pages: 5

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Handle: RePEc:pal:imfstp:v:53:y:2006:i:1:p:5

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Cited by:
  1. Miranda, Jorge, 2012. "Tipo de Cambio Real en Chile: Dinámica, Tendencia y Equilibrio
    [Real Exchange Rate in Chile: Dynamics, Trend and Equilibrium]
    ," MPRA Paper 43076, University Library of Munich, Germany.
  2. Jorge Miranda P., 2013. "Deviation of the purchasing power parity hypothesis and equilibrium real exchange rate: Chile 1986-2011," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Central Bank of Chile, vol. 16(3), pages 04-31, December.
  3. Junttila, Juha & Korhonen, Marko, 2011. "Nonlinearity and time-variation in the monetary model of exchange rates," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(2), pages 288-302, June.
  4. Rodrigo Caputo & Marco Núñez & Rodrigo Valdés, 2007. "Exchange Rate Analysis in Practice," Working Papers Central Bank of Chile, Central Bank of Chile 434, Central Bank of Chile.
  5. Rodrigo Caputo G. & Marco Núñez N, 2008. "Equilibrium Real Exchange Rate in Chile: Alternative Approaches," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Central Bank of Chile, vol. 11(2), pages 59-77, August.
  6. repec:cml:incocp:1-11 is not listed on IDEAS

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