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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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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 16_12.

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Date of creation: Jun 2012
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Handle: RePEc:rim:rimwps:16_12

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

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References

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  1. Taylor, Alan M & Taylor, Mark P, 2004. "The Purchasing Power Parity Debate," CEPR Discussion Papers 4495, C.E.P.R. Discussion Papers.
  2. 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.
  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.
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  7. 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.
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  18. Thanasis Stengos & M. Ege Yazgan, 2011. "Persistence in Convergence," Working Papers 1105, University of Guelph, Department of Economics.
  19. 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.
  20. 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.
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