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Purchasing power parity and the long memory properties of real exchange rates: does one size fit all?

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Author Info

  • Marcel Aloy

    ()
    (DEFI - Centre de Recherche en Développement Economique et Finance Internationale - Université de la Méditerranée - Aix-Marseille II)

  • Mohamed Boutahar

    ()
    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

  • Karine Gente

    ()
    (DEFI - Centre de Recherche en Développement Economique et Finance Internationale - Université de la Méditerranée - Aix-Marseille II)

  • Anne Peguin-Feissolle

    ()
    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

Abstract

This paper examines the time series behavior of monthly bilateral real exchange rates (RER) on a comprehensive sample of 78 industrialized and developing countries, using the U.S. Dollar, the UK Pound and the German Deutsche Mark as numeraires. We suggest a three-step testing procedure based on recently introduced econometric techniques, in order to assess the mean-reverting properties of the RER and to address the question of whether real exchange rates follow a non linear process or a long memory process. The main results are as follows. Firstly, most of the bilateral real exchange rates under study are not mean-reverting. Secondly, the nonlinear ESTAR type adjustment is far from being prominent. Finally, only few bilateral RER exhibit true long memory mean-reverting properties.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00559170.

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Date of creation: 25 Jan 2011
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Handle: RePEc:hal:wpaper:halshs-00559170

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Related research

Keywords: Fractional Integration; Nonlinear modelling; Mean reverting process; Long-memory process;

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References

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Cited by:
  1. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2013. "Long Memory and Fractional Integration in High Frequency Data on the US Dollar / British Pound Spot Exchange Rate," CESifo Working Paper Series 4224, CESifo Group Munich.

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