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Measuring the persistence of deviations from purchasing power parity with a fractionally integrated STAR model

  • Smallwood, Aaron D.

Empirically, elements of both fractional long memory and threshold non-linearity are present in the real exchange rates of the G-7 countries against the US, notably in the EU countries. Estimated half lives of deviations from PPP using median unbiased corrections to conventional linear autoregressive models corroborate existing evidence related to the PPP paradox as half lives range from at least four years to an infinite number of years. In contrast, for each EU country, accounting for threshold non-linearity results in estimated half lives that can be less than three years even with the allowance for fractional long memory.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 7 (November)
Pages: 1161-1176

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:7:p:1161-1176
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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