Purchasing power parity and the long memory properties of real exchange rates: does one size fit all?
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25 janvier 2011
- handle: 10670/1.xkmmlc
- halshs: halshs-00559170
info:eu-repo/semantics/OpenAccess
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Fixed exchange rates Exchange rates Fluctuating exchange rates Flexible exchange rates Rates of exchange Foreign exchange--Rates Floating exchange rates Service of process Service of papers Abuse of process ProcessCiter ce document
Marcel Aloy et al., « Purchasing power parity and the long memory properties of real exchange rates: does one size fit all? », HAL-SHS : économie et finance, ID : 10670/1.xkmmlc
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Résumé
This paper examines the time series behavior of monthly bilateral real exchange rates (RER) on a comprehensive sample of 78 industrialized and developing countries, using the U.S. Dollar, the UK Pound and the German Deutsche Mark as numeraires. We suggest a three-step testing procedure based on recently introduced econometric techniques, in order to assess the mean-reverting properties of the RER and to address the question of whether real exchange rates follow a non linear process or a long memory process. The main results are as follows. Firstly, most of the bilateral real exchange rates under study are not mean-reverting. Secondly, the nonlinear ESTAR type adjustment is far from being prominent. Finally, only few bilateral RER exhibit true long memory mean-reverting properties.