Real Exchange Rates under the Gold Standard

Francis Diebold, Steven Husted and Mark Rush

Journal of Political Economy, 1991, vol. 99, issue 6, 1252-71

Abstract: In this paper, the authors assert that most studies that have sought to determine the validity of purchasing power parity are flawed for two reasons. First, post-1973 data contain, by definition, only a very limited amount of the low-frequency information relevant for examination of long-run parity. Second, the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low-frequency dynamics. Both deficiencies are rectified in the present paper, with dramatic results. With a new longer data set, the authors study deviations from parity using long-memory models that allow for subtle forms of mean reversion. Copyright 1991 by University of Chicago Press.

Date: 1991
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