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Nonlinear Ppp Under The Gold Standard

Author

Listed:
  • Ivan Paya

    (Universidad de Alicante)

  • David A. Peel

    (University Management School)

Abstract

Hegwood and Papell (2002) conclude on the basis of analysis in a linear framework that long-run purchasing power parity (PPP)\ does not hold for sixteen real exchange rate series, analyzed in Diebold, Husted, and Rush (1991) for the period 1792-1913, under the Gold Standard. Rather, purchasing power parity deviations are mean-reverting to a changing equilibrium -a quasi PPP (QPPP) theory. We analyze the real exchange rate adjustment mechanism for their data set assuming a nonlinear adjustment process allowing for both a constant and a mean shifting equilibrium. Our results confirm that real exchange rates at that time were stationary, symmetric, nonlinear processes that revert to a non-constant equilibrium rate. Speeds of adjustment were much quicker when breaks were allowed.

Suggested Citation

  • Ivan Paya & David A. Peel, 2004. "Nonlinear Ppp Under The Gold Standard," Working Papers. Serie AD 2004-24, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2004-24
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2004-24.pdf
    File Function: Fisrt version / Primera version, 2004
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    References listed on IDEAS

    as
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    Cited by:

    1. I Paya & D Peel, 2005. "Temporal aggregation of an ESTAR process," Working Papers 565938, Lancaster University Management School, Economics Department.
    2. Ivan Paya & David Peel, 2005. "The process followed by PPP data. On the properties of linearity tests," Applied Economics, Taylor & Francis Journals, vol. 37(21), pages 2515-2522.
    3. Ivan Paya & David A. Peel, 2006. "Temporal aggregation of an ESTAR process: some implications for purchasing power parity adjustment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(5), pages 655-668, July.

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    More about this item

    Keywords

    Purchasing Power Parity; ESTAR; Bootstrapping.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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