Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions

Ronald MacDonald and Tamim Bayoumi

No 1998/069, IMF Working Papers from International Monetary Fund

Abstract: We examine the mean-reverting properties of real exchange rates, by comparing the unit root properties of a group of international real exchange rates with two groups of intra-national real exchange rates. Strikingly, we find that while the international real rates taken as a group appear mean-reverting, the intra-national rates are not. This is consistent with the view that while monetary shocks may be mean-reverting over the medium term, underlying real factors do generate long-term trends in real exchange rates.

Keywords: WP; Exchange rates; stationarity; country result; testing method; panel unit root test; standard error; mean reversion; Real exchange rates; Purchasing power parity; Monetary unions; Exchange rate analysis; Europe (search for similar items in EconPapers)
Pages: 17
Date: 1998-05-01
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions (1999)
Working Paper: Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions (1998)
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