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Purchasing Power Parity Analyzed from a Continuous-Time Model

Listed author(s):
  • Nicolau João

    ()

    (Instituto Superior de Economia e Gestão)

Registered author(s):

    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.

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    File URL: https://www.degruyter.com/view/j/snde.2011.15.3/snde.2011.15.3.1773/snde.2011.15.3.1773.xml?format=INT
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    Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

    Volume (Year): 15 (2011)
    Issue (Month): 3 (May)
    Pages: 1-26

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    Handle: RePEc:bpj:sndecm:v:15:y:2011:i:3:n:3
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    1. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-1042, November.
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    5. E Pavlidis & I Paya & D Peel, 2009. "Real Exchange Rates and Time-Varying Trade Costs," Working Papers 600537, Lancaster University Management School, Economics Department.
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    7. Sollis, Robert & Leybourne, Stephen & Newbold, Paul, 2002. "Tests for Symmetric and Asymmetric Nonlinear Mean Reversion in Real Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 686-700, August.
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