Home bias and the persistence of real exchange rates

Show-Lin Chen and Jyh-Lin Wu

Economic Modelling, 2011, vol. 28, issue 1, 55-59

Abstract: This paper investigates the half-life of real exchange rates after taking into account the impact of home bias. Empirical results indicate that the half-life of real exchange rates is in the range of 1.5 to 2years for four out of five countries after controlling the impact of home bias. These results support Obstfeld and Rogoff's (2000, NBER Macroeconomics Annual) view that home bias is crucial in explaining the PPP puzzle.

Keywords: Home bias; Real exchange rates; Half-life; Local projections (search for similar items in EconPapers)
JEL-codes: C22 C51 F31 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:1:p:55-59

DOI: 10.1016/j.econmod.2010.09.025

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