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A Nonparametric Study of Real Exchange Rate Persistence over a Century

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  • Hyeongwoo Kim
  • Deockhyun Ryu

Abstract

This paper estimates the degree of persistence of 16 long-horizon real exchange rates relative to the US dollar. We use nonparametric operational algorithms by El-Gamal and Ryu (2006) for general nonlinear models based on two statistical notions: the short memory in mean (SMM) and the short memory in distribution (SMD). We found substantially shorter maximum half-life (MHL) estimates than the counterpart from linear models, which is robust to the choice of bandwidth with exceptions of Canada and Japan.

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File URL: http://cla.auburn.edu/econwp/Archives/2013/2013-08.pdf
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Bibliographic Info

Paper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2013-08.

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Date of creation: Jul 2013
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Handle: RePEc:abn:wpaper:auwp2013-08

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Postal: 0326 Haley Center, Auburn University, AL 36849-5049
Phone: (334) 844-4910
Fax: (334) 844-4615
Web page: http://cla.auburn.edu/economics/
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Keywords: Real Exchange Rate; Purchasing Power Parity; Short Memory in Mean; Short-Memory in Distribution; mixing; Max Half-Life; Max Quarter-Life;

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References

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  1. Shiu-Sheng Chen & Charles Engel, 2005. "Does 'Aggregation Bias' Explain The Ppp Puzzle?," Pacific Economic Review, Wiley Blackwell, vol. 10(1), pages 49-72, 02.
  2. Rossi, Barbara, 2005. "Confidence Intervals for Half-Life Deviations From Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 432-442, October.
  3. Jean Imbs & Haroon Mumtaz & Morton O. Ravn & Helene Rey, 2002. "PPP Strikes Back: Aggregation and the Real Exchange Rate," NBER Working Papers 9372, National Bureau of Economic Research, Inc.
  4. Kim, Hyeongwoo & Moh, Young-Kyu, 2010. "A century of purchasing power parity confirmed: The role of nonlinearity," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1398-1405, November.
  5. Joon Y. Park & Mototsugu Shintani, 2005. "Testing for a Unit Root against Transitional Autoregressive Models," Vanderbilt University Department of Economics Working Papers 05010, Vanderbilt University Department of Economics.
  6. Claude Lopez & Christian J. Murray & David H. Papell, 2003. "State of the Art Unit Root Tests and the PPP Puzzle," Macroeconomics 0310009, EconWPA.
  7. J�n Steinsson, 2008. "The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models," American Economic Review, American Economic Association, vol. 98(1), pages 519-33, March.
  8. Mario J. Crucini & Mototsugu Shintani, 2002. "Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data," Vanderbilt University Department of Economics Working Papers 0222, Vanderbilt University Department of Economics, revised Jul 2004.
  9. Mototsugu Shintani, 2002. "A Nonparametric Measure of Convergence Toward Purchasing Power Parity," Vanderbilt University Department of Economics Working Papers 0219, Vanderbilt University Department of Economics, revised Jul 2004.
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  11. Parsley, David & Wei, Shang-Jin, 2004. "A Prism into the PPP Puzzles: The Micro-Foundations of Big Mac Real Exchange Rates," CEPR Discussion Papers 4486, C.E.P.R. Discussion Papers.
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  14. Christopher F. Baum & Mustafa Caglayan & John Barkoulas, 1998. "Nonlinear Adjustment to Purchasing Power Parity in the post-Bretton Woods Era," Boston College Working Papers in Economics 404., Boston College Department of Economics, revised 16 Nov 1999.
  15. Murray, Christian J. & Papell, David H., 2005. "Do Panels Help Solve the Purchasing Power Parity Puzzle?," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 410-415, October.
  16. Simon M. Potter, 1999. "Nonlinear impulse response functions," Staff Reports 65, Federal Reserve Bank of New York.
  17. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  18. Bruce E. Hansen, 1999. "The Grid Bootstrap And The Autoregressive Model," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 594-607, November.
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  21. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1993. "Nonlinear Dynamic Structures," Econometrica, Econometric Society, vol. 61(4), pages 871-907, July.
  22. El-Gamal, Mahmoud A. & Ryu, Deockhyun, 2006. "Short-memory and the PPP hypothesis," Journal of Economic Dynamics and Control, Elsevier, vol. 30(3), pages 361-391, March.
  23. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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