Analyzing aggregate real exchange rate persistence through the lens of sectoral data

Laura Mayoral and María Gadea ()

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: In this paper we analyze the persistence of aggregate real exchange rates (RERs) for a group of EU-15 countries by using sectoral data. The tight relation between aggregate and sectoral persistence recently investigated by Mayoral (2008) allows us to decompose aggregate RER persistence into the persistence of its different subcomponents. We show that the distribution of sectoral persistence is highly heterogeneous and very skewed to the right, and that a limited number of sectors are responsible for the high levels of persistence observed at the aggregate level. We use quantile regression to investigate whether the traditional theories proposed to account for the slow reversion to parity (lack of arbitrage due to nontradibilities or imperfect competition and price stickiness) are able to explain the behavior of the upper quantiles of sectoral persistence. We conclude that pricing to market in the intermediate goods sector together with price stickiness have more explanatory power than variables related to the tradability of the goods or their inputs.

Keywords: PPP puzzle; real exchange rates; persistence; heterogeneous dynamics; aggregation bias; nontradability; imperfect competition; pricing-to-market. (search for similar items in EconPapers)
Pages: 44
Date: 2009-10-13
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Analyzing aggregate real exchange rate persistence through the lens of sectoral data (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:787.09

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