EconPapers    
Economics at your fingertips  
 

Parity Reversion in Real Exchange Rates; Fast, Slow or Not At All?

Christopher McDermott () and Paul Cashin ()

No 04/128, IMF Working Papers from International Monetary Fund

Abstract: Consensus estimates put the half-life of deviations from purchasing power parity (PPP) at about four years (Rogoff, 1996). However, conventional least squares estimates of half-lives are biased downward. Accordingly, as a preferred measure of the persistence of real exchange rate shocks, this study uses median-unbiased estimators of the half-life of deviations from parity, which correct for the downward bias of conventional estimators. The paper tests for PPP using real effective exchange rate data for 90 developed and developing countries in the post-Bretton Woods period. Support for PPP is found, as the majority of countries experience finite deviations of real exchange rates from parity. The speed of parity reversion is found to be typically much faster for developed countries than for developing countries, and to be considerably faster for countries with flexible nominal exchange rate regimes in comparison with countries having fixed nominal exchange rate regimes.

Keywords: Foreign exchange; Parity reversion, real exchange rate, post-Bretton Woods, exchange rate, exchange rates, real exchange rates, nominal exchange rate, Open Economy Macroeconomics, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-ifn
Date: 2004-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=17519 (application/pdf)

Related works:
Journal Article: Parity Reversion in Real Exchange Rates: Fast, Slow, or Not at All? (2006) Downloads
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:imf:imfwpa:04/128

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Jim Beardow ().

 
Page updated 2019-10-17
Handle: RePEc:imf:imfwpa:04/128