Long memory or structural breaks: Can either explain nonstationary real exchange rates under the current float?
AbstractThis paper considers two potential rationales for the apparent absence of mean reversion in real exchange rates in the post-Bretton Woods era. We allow for (i) fractional integration and (ii) a double mean shift in the real exchange rate process. These methods, applied to CPI-based rates for 17 countries and WPI-based rates for 12 countries, demonstrate that the unit-root hypothesis is robust against both fractional alternatives and structural breaks. This evidence suggests rejection of the doctrine of absolute long-run purchasing power parity during the post-Bretton Woods era.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 380.
Length: 27 pages
Date of creation: 01 Feb 1998
Date of revision:
Publication status: published, Journal of International Financial Markets, Institutions, and Money, 1999, 9, 359-376.
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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
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purchasing power parity; long memory; structural breaks;
Other versions of this item:
- Baum, Christopher F. & Barkoulas, John T. & Caglayan, Mustafa, 1999. "Long memory or structural breaks: can either explain nonstationary real exchange rates under the current float?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(4), pages 359-376, November.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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