 Parity reversion persistence in real exchange rates: middle income country caseLahcen Achy () Applied Economics, 2003, vol. 35, issue 5, 541-553 Abstract: This article investigates purchasing power parity (PPP) in the specific context of middle income countries. To circumvent the low power of traditional stationarity tests (Augmented Dickey-Fuller and Phillips-Perron tests), it performs variance ratio and fractional integration tests in addition to Perron's test that accounts for potential structural changes in real exchange rate processes. Beyond estimating half-life shocks to PPP, this article attempts to explain these estimates using a set of country specific variables as suggested by economic theory. The evidence suggests that reversion to parity tends to be faster in high inflation countries and that productivity improvement leads to a higher level of persistence. Openness to trade tends to reduce the extent of deviations from parity but this result does not appear to be statistically robust. Evidence shows also that deviations are less persistent under a fixed exchange rate regime and under unrestricted capital mobility. Date: 2003 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:35:y:2003:i:5:p:541-553 Ordering information: This journal article can be ordered from DOI: 10.1080/0003684022000015937 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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