Price Indices and Nonlinear Mean-Reversion of Real Exchange Rates
AbstractThe purpose of this article is to apply a symmetric band–threshold autoregressive model to investigate several interesting issues regarding purchasing power parity (PPP). We find that the nonlinear adjustment toward PPP is sensitive to price indices and is supported if a traded-goods real exchange rate is applied. Moreover, we also uncover the sources of the real exchange rate adjustments toward PPP. Finally, our evidence points out that the estimated half-life with a large shock, based on a generalized impulse response function, can be explained by nominal rigidities.
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Bibliographic InfoArticle provided by Southern Economic Association in its journal Southern Economic Journal.
Volume (Year): 73 (2006)
Issue (Month): 2 (October)
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- F31 - International Economics - - International Finance - - - Foreign Exchange
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- Mamatzakis, E & Remoundos, P, 2010. "Threshold Cointegration in BRENT crude futures market," MPRA Paper 19978, University Library of Munich, Germany.
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