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Inflation Thresholds and the Efficiency of the Banking Sector

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  • Edgar A. Ghossoub

    (UTSA)

Abstract

This study re-examines the validity of Purchasing Power Parity (PPP) by focusing on the real effective exchange rates (REERs) for the post-Bretton Woods period, using newly developed unit root tests that account for both nonlinearity and smooth temporary multiple breaks in the data. The tests are applied to the REERs of 23 developed countries and are able to reject the null hypothesis of a unit root in 20 cases. The test results reveal that large swings truly exist in most of the REERs, therefore it is crucial to model these infrequent smooth temporary mean changes in the data in testing the (non)stationarity of the REERs. The study provides stronger support than most of previous studies for that PPP holds in a stricter, multi-country version during the floating exchange rate period for the majority of developed countries.

Suggested Citation

  • Edgar A. Ghossoub, 2015. "Inflation Thresholds and the Efficiency of the Banking Sector," Working Papers 0159eco, College of Business, University of Texas at San Antonio.
    • Handle: RePEc:tsa:wpaper:0159eco
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic Development; Inflation Thresholds; Banking competition; Monetary Policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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