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Decline in the Persistence of Real Exchange Rates : But Not Sufficient for Purchasing Power Parity

  • OKIMOTO, Tatsuyoshi
  • SHIMOTSU, Katsumi

The paper investigates the possibility of decline in the persistence of real exchange rates, or deviations from PPP. To this end, we test the null hypothesis of no decline in the PPP deviation persistence between two subsamples using a fractional integration framework. In addition, our rolling-window estimates show that the real exchange rate of many countries have experienced a sharp drop in their persistence once we use samples starting from the mid-1980s. Finally, we examine the relationship between the dynamics of PPP deviation persistence and several economic variables and confirm that the speed of convergence of PPP deviations is highly related to economic/financial integration and world economic stabilization.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/18512/1/070econDP10-06.pdf
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Paper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2010-06.

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Length: 28, [3] p.
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:hit:econdp:2010-06
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Web page: http://www.econ.hit-u.ac.jp/
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