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Persistence in Real Exchange Rate Convergence

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  • Thanasis Stengos

    ()
    (University of Guelph.)

  • M. Ege Yazgan

    ()
    (Istanbul Bilgi University)

Abstract

In this paper we use a long memory framework to examine the validity of the Purchasing Power Parity (PPP) hypothesis using both monthly and quarterly data for a panel of 47 countries over a fifty year period (1957 to 2009). The analysis focusses on the long memory parameter d that allows us to obtain different convergence classifications depending on its value. Our analysis allows for the presence of smooth structural breaks and it does not rely on the use of a benchmark. Overall the evidence strongly points to the presence of a long memory process, where 0.5=d

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File URL: http://www.uoguelph.ca/economics/sites/uoguelph.ca.economics/files/2012-07.pdf
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Bibliographic Info

Paper provided by University of Guelph, Department of Economics and Finance in its series Working Papers with number 1207.

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Length: 28
Date of creation: 2012
Date of revision:
Handle: RePEc:gue:guelph:2012-07.

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Keywords: Purchasing Power Parity; Convergence; Long Memory; Pairwise Approach.;

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References

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  1. Katsumi Shimotsu & Peter C.B. Phillips, 2002. "Exact Local Whittle Estimation of Fractional Integration," Cowles Foundation Discussion Papers 1367, Cowles Foundation for Research in Economics, Yale University, revised Jul 2004.
  2. Hashem Pesaran, M., 2007. "A pair-wise approach to testing for output and growth convergence," Journal of Econometrics, Elsevier, vol. 138(1), pages 312-355, May.
  3. Shimotsu, Katsumi, 2010. "Exact Local Whittle Estimation Of Fractional Integration With Unknown Mean And Time Trend," Econometric Theory, Cambridge University Press, vol. 26(02), pages 501-540, April.
  4. Karim Abadir & Gabriel Talmain, 2002. "Aggregation, Persistence and Volatility in a Macro Model," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 749-779.
  5. Jeffrey A. Frankel & Andrew K. Rose, 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," NBER Working Papers 5006, National Bureau of Economic Research, Inc.
  6. Taylor, Alan M & Taylor, Mark P, 2004. "The Purchasing Power Parity Debate," CEPR Discussion Papers 4495, C.E.P.R. Discussion Papers.
  7. Ralf Becker & Walter Enders & A. Stan Hurn, 2001. "Testing for Time Dependence in Parameters," Research Paper Series 58, Quantitative Finance Research Centre, University of Technology, Sydney.
  8. Mario J. Crucini & Mototsugu Shintani, 2006. "Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data," Vanderbilt University Department of Economics Working Papers 0616, Vanderbilt University Department of Economics.
  9. Smith, Aaron D., 2004. "Level Shifts and the Illusion of Long Memory in Economic Time Series," Working Papers 11974, University of California, Davis, Department of Agricultural and Resource Economics.
  10. Stephane Dees & Filippo di Mauro & M. Hashem Pesaran & L. Vanessa Smith, 2005. "Exploring the International Linkages of the Euro Area: a Global VAR Analysis," CESifo Working Paper Series 1425, CESifo Group Munich.
  11. Chi-Young Choi & Nelson Mark & Donggyu Sul, 2004. "Unbiased Estimation of the Half-Life to PPP Convergence in Panel Data," NBER Working Papers 10614, National Bureau of Economic Research, Inc.
  12. Abadir, Karim M. & Distaso, Walter & Giraitis, Liudas, 2007. "Nonstationarity-extended local Whittle estimation," Journal of Econometrics, Elsevier, vol. 141(2), pages 1353-1384, December.
  13. Thanasis Stengos & M. Ege Yazgan, 2011. "Persistence in Convergence," Working Paper Series 34_11, The Rimini Centre for Economic Analysis.
  14. 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.
  15. Yazgan, M. Ege & Yilmazkuday, Hakan, 2011. "Price-level convergence: New evidence from U.S. cities," Economics Letters, Elsevier, vol. 110(2), pages 76-78, February.
  16. Shimotsu, Katsumi & Phillips, Peter C.B., 2006. "Local Whittle estimation of fractional integration and some of its variants," Journal of Econometrics, Elsevier, vol. 130(2), pages 209-233, February.
  17. Ludlow, Jorge & Enders, Walter, 2000. "Estimating non-linear ARMA models using Fourier coefficients," International Journal of Forecasting, Elsevier, vol. 16(3), pages 333-347.
  18. Stephen G. Cecchetti & Nelson C. Mark & Robert J. Sonora, 2002. "Price Index Convergence Among United States Cities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1081-1099, November.
  19. Gilles Dufrénot & Valérie Mignon & Théo Naccache, . "The slow convergence of per capita income between the developing countries: “growth resistance” and sometimes “growth tragedy”," Discussion Papers 09/03, University of Nottingham, CREDIT.
  20. M. Hashem Pesaran & Ron Smith & Takashi Yamagata & Lyudmyla Hvozdyk, 2009. "Pairwise Tests of Purchasing Power Parity," Econometric Reviews, Taylor & Francis Journals, vol. 28(6), pages 495-521.
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Cited by:
  1. M. Ege Yazgan & Hakan Yilmazkuday, 2014. "High versus Low Inflation: Implications for Price-Level Convergence," Koç University-TUSIAD Economic Research Forum Working Papers 1412, Koc University-TUSIAD Economic Research Forum.

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