HALF-LIFE DEVIATIONS FROM PURCHASING POWER PARITY: EVIDENCE FROM PACIFIC RIM COUNTRIES

Ming-Jen Chang ()
Additional contact information
Ming-Jen Chang: Department of Economics, National Dong Hwa University, Hualien 97401, Taiwan

The Singapore Economic Review (SER), 2016, vol. 61, issue 04, 1-20

Abstract: The study examines the half-life deviations from purchasing power parity (PPP) using both linear and nonlinear models for the sector specific real exchange rates of the Pacific Rim countries. By using a linear benchmark model, the estimated half-life deviations from PPP of about/or less than 3 years seemingly solve the PPP puzzle. After re-examining them using nonlinear forms, the PPP puzzle for most sectoral real exchange rates in the study still remains. More specifically, we find that deviations from PPP by TAR are persistent and take much more time for mean reversions especially for non-tradable sectors using logistic STAR / exponential STAR (LSTAR/ESTAR). The major reasons might be that conventional studies have failed to control the possible nonlinearity of real exchange rates, and have disregarded the possible bias of any single numèraire country. Finally, we also show the speed of mean reversion for real exchange rates by sectoral prices (tradable and non-tradable).

Keywords: Aggregation bias; half-life; nonlinearity; real exchange rate (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S021759081650003X
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:61:y:2016:i:04:n:s021759081650003x

Ordering information: This journal article can be ordered from

DOI: 10.1142/S021759081650003X

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().