Testing purchasing power parity in a DFA rolling Hurst framework: the case of 23 OECD countries

Periklis Gogas, Theophilos Papadimitriou and Georgios Sarantitis ()

Applied Financial Economics, 2013, vol. 23, issue 17, 1399-1406

Abstract: We test the validity of the Purchasing Power Parity theory, examining the Real Exchange Rate of 23 OECD countries for mean-reversion. In doing so, we estimate the Hurst exponent, which is a well-established estimator of long memory in time series analysis. The innovation of our approach is that we employ the Detrended Fluctuation Analysis (DFA) for the estimation of Hurst on Real Exchange Rates both in the full sample and in rolling windows of three different sizes in an attempt to identify possible trends, breaks and the evolution of Hurst through time.

Date: 2013
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DOI: 10.1080/09603107.2013.829196

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