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Real Exchange Rates under the Gold Standard

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  • Diebold, Francis X
  • Husted, Steven
  • Rush, Mark

Abstract

In this paper, the authors assert that most studies that have sought to determine the validity of purchasing power parity are flawed for two reasons. First, post-1973 data contain, by definition, only a very limited amount of the low-frequency information relevant for examination of long-run parity. Second, the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low-frequency dynamics. Both deficiencies are rectified in the present paper, with dramatic results. With a new longer data set, the authors study deviations from parity using long-memory models that allow for subtle forms of mean reversion. Copyright 1991 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 99 (1991)
Issue (Month): 6 (December)
Pages: 1252-71

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Handle: RePEc:ucp:jpolec:v:99:y:1991:i:6:p:1252-71

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References

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  1. Cheung, Yin-Wong, 1993. "Long Memory in Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 93-101, January.
  2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  3. Craig S. Hakkio, 1982. "A Reexamination of Purchasing Power Parity: A Multicountry and Multiperiod Study," NBER Working Papers 0865, National Bureau of Economic Research, Inc.
  4. Francis X. Diebold & Glenn D. Rudebusch, 1990. "On the power of Dickey-Fuller tests against fractional alternatives," Finance and Economics Discussion Series 119, Board of Governors of the Federal Reserve System (U.S.).
  5. Diebold, Francis X. & Rudebusch, Glenn D., 1989. "Long memory and persistence in aggregate output," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 189-209, September.
  6. Sowell, Fallaw, 1992. "Maximum likelihood estimation of stationary univariate fractionally integrated time series models," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 165-188.
  7. Frankel, Jeffrey A., 1989. "Quantifying International Capital Mobility in the 1980s," Department of Economics, Working Paper Series qt4fw7c7bh, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Lothian, James R., 1990. "A century plus of Yen exchange rate behavior," Japan and the World Economy, Elsevier, vol. 2(1), pages 47-70, March.
  9. Francis X. Diebold & Glenn D. Rudebusch, 1989. "Is consumption too smooth? Long memory and the Deaton paradox," Finance and Economics Discussion Series 57, Board of Governors of the Federal Reserve System (U.S.).
  10. Francis X. Diebold & Marc Nerlove, 1988. "Unit roots in economic time series: a selective survey," Finance and Economics Discussion Series 49, Board of Governors of the Federal Reserve System (U.S.).
  11. Officer, Lawrence H., 1983. "Dollar-Sterling Mint Parity and Exchange Rates, 1791–1834," The Journal of Economic History, Cambridge University Press, vol. 43(03), pages 579-616, September.
  12. Clark, Truman A, 1984. "Violations of the Gold Points, 1890-1908," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 791-823, October.
  13. Hakkio, Craig, 1986. "Does the exchange rate follow a random walk? A Monte Carlo study of four tests for a random walk," Journal of International Money and Finance, Elsevier, vol. 5(2), pages 221-229, June.
  14. Mark Rush & Steven Husted, 1985. "Purchasing Power Parity in the Long Run," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 137-45, February.
  15. Perkins, Edwin J., 1978. "Foreign Interest Rates in American Financial Markets: A Revised Series of Dollar-Sterling Exchange Rates, 1833–1900," The Journal of Economic History, Cambridge University Press, vol. 38(02), pages 392-417, June.
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