EconPapers    
Economics at your fingertips  
 

Mean reversion in long-horizon real exchange rates: Evidence from Latin America

Pablo Astorga ()

Journal of International Money and Finance, 2012, vol. 31, issue 6, 1529-1550

Abstract: This paper examines mean reversion in real effective exchange rates in six leading Latin American economies during the XXth century using a new data set. A unit-root approach is complemented by an error-correction model including key fundamentals such as terms of trade, trade openness and relative productivities. Unit-root testing shows a very slow process of reversion – if any – to a constant mean in the original series, rejecting the strict PPP hypothesis; however, mean reversion is found after allowing for trends and structural breaks with a half-life average of 1½ years for the six countries. We also found reversion to a conditional mean defined by the co-integrating relationship with an average half-life of 2½ years. Our estimates, although lower than the 3–5 year range that motivated the Rogoff’s puzzle, still indicate the presence of important obstacles to the adjustment process that need further investigation.

Keywords: Real exchange rates; Purchasing power parity; Mean reversion; Economic development; Latin America (search for similar items in EconPapers)
JEL-codes: F41 F31 N16 O11 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560612000551
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Mean Reversion in Long-Horizon Real Exchange Rates: Evidence from Latin America (2010)
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:jimfin:v:31:y:2012:i:6:p:1529-1550

DOI: 10.1016/j.jimonfin.2012.02.014

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-05-16
Handle: RePEc:eee:jimfin:v:31:y:2012:i:6:p:1529-1550