EconPapers    
Economics at your fingertips  
 

Examining the evidence of purchasing power parity by recursive mean adjustment

Hyeongwoo Kim () and Young-Kyu Moh

Economic Modelling, 2012, vol. 29, issue 5, 1850-1857

Abstract: This paper revisits the empirical evidence of purchasing power parity under the current float by recursive mean adjustment (RMA) proposed by So and Shin (1999). We first report superior power of the RMA-based unit root test in finite samples relative to the conventional augmented Dickey–Fuller (ADF) test via Monte Carlo experiments for 16 linear and nonlinear autoregressive data generating processes. We find that the more powerful RMA-based unit root test rejects the null hypothesis of a unit root for 16 out of 20 current float real exchange rates relative to the US dollar, while the ADF test rejects only 5 at the 10% significance level. We also find that the computationally simple RMA-based asymptotic confidence interval can provide useful information regarding the half-life of the real exchange rate.

Keywords: Recursive mean adjustment; Finite sample performance; Purchasing power parity; Half-life (search for similar items in EconPapers)
JEL-codes: C12 C22 F31 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999312001277
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Examining the Evidence of Purchasing Power Parity by Recursive Mean Adjustment (2010) Downloads
Working Paper: Examining the Evidence of Purchasing Power Parity by Recursive Mean Adjustment (2010) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:5:p:1850-1857

DOI: 10.1016/j.econmod.2012.05.008

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-23
Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1850-1857