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Purchasing Power Parity Analyzed from a Continuous-Time Model

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  • Nicolau João

    (Instituto Superior de Economia e Gestão)

Abstract

We propose a continuous-time process for modeling real exchange rates (RER) to provide new insights into the mechanism of reversion and into the limit properties of the process. In particular, in connection to the Purchasing Power Parity hypothesis, we discuss concepts such as mean-reversion, stationary distribution and expected time to leave certain intervals. Based on the proposed specification, we model eleven RER among industrialized countries and use the expected time to leave certain intervals to discuss further issues related to the stability of RER.

Suggested Citation

  • Nicolau João, 2011. "Purchasing Power Parity Analyzed from a Continuous-Time Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 15(3), pages 1-26, May.
    • Handle: RePEc:bpj:sndecm:v:15:y:2011:i:3:n:3
    DOI: 10.2202/1558-3708.1773
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    References listed on IDEAS

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    Cited by:

    1. Nicolau, João, 2017. "A simple nonparametric method to estimate the expected time to cross a threshold," Statistics & Probability Letters, Elsevier, vol. 123(C), pages 146-152.

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