Advanced Search
MyIDEAS: Login

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

Contents:

Author Info

  • 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

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/External/Pubs/FT/staffp/2006/01/pdf/cashin.pdf
File Function: main text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

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

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

as in new window
Handle: RePEc:pal:imfstp:v:53:y:2006:i:1:p:5

Contact details of provider:
Web page: http://www.palgrave-journals.com/

Order Information:
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
Email:
Web: http://www.palgrave-journals.com/pal/subscribe/index.html

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Hamid Faruqee, 1995. "Pricing to Market and the Real Exchange Rate," IMF Staff Papers, Palgrave Macmillan, vol. 42(4), pages 855-881, December.
  2. Hall, Alastair R, 1994. "Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 461-70, October.
  3. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  4. Cashin, Paul & McDermott, C. John & Pattillo, Catherine, 2004. "Terms of trade shocks in Africa: are they short-lived or long-lived?," Journal of Development Economics, Elsevier, vol. 73(2), pages 727-744, April.
  5. Kenneth Rogoff & Kenneth Froot & Michael Kim, 2001. "The Law of One Price Over 700 Years," IMF Working Papers 01/174, International Monetary Fund.
  6. Peel, David & Sarno, Lucio & Taylor, Mark P, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles," CEPR Discussion Papers 2658, C.E.P.R. Discussion Papers.
  7. Paul Cashin & Hong Liang & C. John McDermott, 2000. "How Persistent Are Shocks to World Commodity Prices?," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 2.
  8. Reinhart, Carmen & Calvo, Guillermo & Vegh, Carlos, 1994. "Targeting the real exchange rate: Theory and evidence," MPRA Paper 13412, University Library of Munich, Germany.
  9. C. John McDermott & Paul Cashin, 2001. "An Unbiased Appraisal of Purchasing Power Parity," IMF Working Papers 01/196, International Monetary Fund.
  10. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  11. C. John McDermott, 1996. "Estimation of the Near Unit Root Model of Real Exchange Rates," IMF Working Papers 96/50, International Monetary Fund.
  12. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
  13. Kenneth A. Froot & Kenneth Rogoff, 1996. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
  14. Mark P. Taylor, 2003. "Purchasing Power Parity," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 436-452, 08.
  15. Lucio Sarno & Mark P. Taylor, 2002. "Purchasing Power Parity and the Real Exchange Rate," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 5.
  16. Mussa, Michael, 1986. "Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 117-214, January.
  17. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  18. Devereux, John & Connolly, Michael, 1996. "Commercial policy, the terms of trade and the real exchange rate revisited," Journal of Development Economics, Elsevier, vol. 50(1), pages 81-99, June.
  19. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  20. Cashin, Paul & Cespedes, Luis F. & Sahay, Ratna, 2004. "Commodity currencies and the real exchange rate," Journal of Development Economics, Elsevier, vol. 75(1), pages 239-268, October.
  21. Cheung, Yin-Wong & Lai, Kon S., 2000. "On cross-country differences in the persistence of real exchange rates," Journal of International Economics, Elsevier, vol. 50(2), pages 375-397, April.
  22. Peter C.B. Phillips, 1990. "To Criticize the Critics: An Objective Bayesian Analysis of Stochastic Trends," Cowles Foundation Discussion Papers 950, Cowles Foundation for Research in Economics, Yale University.
  23. repec:imf:imfpdp:9305 is not listed on IDEAS
  24. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
  25. Cheung, Yin-Wong & Lai, Kon S., 2000. "On the purchasing power parity puzzle," Journal of International Economics, Elsevier, vol. 52(2), pages 321-330, December.
  26. Cheung, Yin-Wong & Chinn, Menzie & Fujii, Eiji, 2001. "Market Structure and the Persistence of Sectoral Real Exchange Rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(2), pages 95-114, April.
  27. Hamid Faruqee, 1995. "Pricing to Market and the Real Exchange Rate," IMF Working Papers 95/12, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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, vol. 11(2), pages 59-77, August.
  2. Ganguly, Srideep & Breuer, Janice Boucher, 2010. "Nominal exchange rate volatility, relative price volatility, and the real exchange rate," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 840-856, September.
  3. Rodrigo Caputo G. & Marco Núñez N. & Rodrigo O. Valdés P., 2008. "Exchange Rate Analysis in Practice," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(1), pages 61-91, April.
  4. repec:cml:incocp:1-11 is not listed on IDEAS
  5. Derek Bond & Michael J. Harrison & Edward J. O'Brien, 2006. "Purchasing Power Parity: The Irish Experience Re-visited," Trinity Economics Papers tep200615, Trinity College Dublin, Department of Economics.
  6. Ricardo Hausmann & Ugo Panizza & Roberto Rigobon, 2004. "The Long-Run Volatility Puzzle of the Real Exchange Rate," NBER Working Papers 10751, National Bureau of Economic Research, Inc.
  7. 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.
  8. Junttila, Juha & Korhonen, Marko, 2011. "Nonlinearity and time-variation in the monetary model of exchange rates," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 288-302, June.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pal:imfstp:v:53:y:2006:i:1:p:5. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Gale).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.