LONG MEMORY AND PERSISTENCE IN DOLLAR-BASED REAL EXCHANGE RATES

Fotios Siokis () and Chris Christodoulou
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Fotios Siokis: Economic Research Division, ALPHA BANK and Department of Economics, University of Patras, Greece
Chris Christodoulou: Department of Economics, Cyprus College, Cyprus

International Journal of Theoretical and Applied Finance (IJTAF), 2004, vol. 07, issue 01, 31-44

Abstract: A common view among recent studies on purchasing power parity is that the post-Bretton Woods period is far too short to reveal any significant parity reversion in individual series of real exchange rates. The answer depends on the statistical techniques being used. This study uses alternative econometric time-series technique, which does not require long sample sizes, and reports strong evidence of mean reversion in dollar-based real exchange rates. Further analysis of the estimated impulse responses indicates that the persistence in real exchange rate changes is difficult to detect because the short and long run dynamics interact in such a way that the impulse response weights exhibit a rapid decay.

Keywords: Purchasing power parity; fractional integration; Whittle likelihood estimation; JEL classification code: F31; F41 (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1142/S0219024904002311

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