Sticky prices and time to equilibrium: evidence from Asia-Pacific trade-related economies

Catherine Ho and Mohamed Ariff ()

Applied Economics, 2011, vol. 43, issue 21, 2851-2861

Abstract: The theoretical relation between exchange rate and prices has been a difficult proposition to find supporting evidence despite many studies of developed economies using standard research methods. The exchange rate to price relation appears to hold in the long run only, a result consistent with sticky price hypothesis. There is a need to add to this sticky price literature by examining more yet-studied economies to this area of research. This article presents results to support long-run equilibrium in the Asia-Pacific economies as being 5 years. The methodology is used to group countries with high-trade intensity within a region and value-weight the resulting variables to test the theory in a regional context. Our positive finding on the long-run equilibrium, we believe, helps in some ways to enrich the literature on the exchange rate behaviour of an important region for world trade.

Date: 2011
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DOI: 10.1080/09603100903425189

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