A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries

Jeffrey Frankel and Andrew Rose

No 5006, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Previous time-series studies have shown evidence of mean- reversion in real exchange rates. Deviations from purchasing power parity (PPP) appear to have half-lives of approximately four years. However, the long samples required for statistical significance are unavailable for most currencies, and may be inappropriate because of regime changes. In this study, we re-examine deviations from PPP using a panel of 150 countries and 45 annual observations. Our panel shows strong evidence of mean-reversion that is similar to that from long time-series. PPP deviations are eroded at a rate of approximately 15% annually, i.e., their half-life is around four years. Such findings can be masked in time-series data, but are relatively easy to find in cross-sections.

JEL-codes: F30 (search for similar items in EconPapers)
Date: 1995-02
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

Published as Journal of International Economics, Feb.1996, vol.40, no.1-2, pp.209-224.

Downloads: (external link)
http://www.nber.org/papers/w5006.pdf (application/pdf)

Related works:
Journal Article: A panel project on purchasing power parity: Mean reversion within and between countries (1996)
Working Paper: A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries (1995)
Working Paper: A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries (1995)
Working Paper: A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries (1995)
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:nbr:nberwo:5006

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5006

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().