Deconstructing Shocks and Persistence in OECD Real Exchange Rates

Syed A. Basher () and Josep Carrion-i-Silvestre
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Syed A. Basher: Department of Economic Policies, Qatar Central Bank, Doha, Qatar.

No XREAP2008-06, Working Papers from Xarxa de Referència en Economia Aplicada (XREAP)

Abstract: This paper analyzes the persistence of shocks that affect the real exchange rates for a panel of seventeen OECD developed countries during the post-Bretton Woods era. The adoption of a panel data framework allows us to distinguish two different sources of shocks, i.e. the idiosyncratic and the common shocks, each of which may have di¤erent persistence patterns on the real exchange rates. We first investigate the stochastic properties of the panel data set using panel stationarity tests that simultaneously consider both the presence of cross-section dependence and multiple structural breaks that have not received much attention in previous persistence analyses. Empirical results indicate that real exchange rates are non-stationary when the analysis does not account for structural breaks, although thisconclusion is reversed when they are modeled. Consequently, misspecification errors due to the non-consideration of structural breaks leads to upward biased shocks' persistence measures. The persistence measures for the idiosyncratic and common shocks have been estimated in this paper always turn out to be less than one year.

Pages: 35 pages
Date: 2008-06, Revised 2008-06
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-opm
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Citations: View citations in EconPapers (4)

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http://www.xreap.cat/RePEc/xrp/pdf/XREAP2008-06.pdf First version, 2008 (application/pdf)
http://www.xreap.cat/RePEc/xrp/pdf/XREAP2008-06.pdf Revised version, 2008 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:xrp:wpaper:xreap2008-06

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