Examining the Evidence of Purchasing Power Parity by Recursive Mean Adjustment
Hyeongwoo Kim () and
MPRA Paper from University Library of Munich, Germany
This paper revisits the empirical evidence of purchasing power parity under the current float by the recursive mean adjustment (RMA) method (So and Shin, 1999). We first demonstrate superior finite sample performance of the RMA-based unit root test over the augmented Dickey-Fuller test via Monte Carlo experiments for 18 linear and nonlinear autoregressive data generating processes. The RMA-based unit root test rejects the null hypothesis of unit root for 16 out of 20 current float real exchange rates relative to the US dollar.We also find that the computationally simple RMA-based asymptotic confidence interval can provide useful information regarding the half-life of the real exchange rate.
Keywords: Recursive Mean Adjustment; Finite Sample Performance; Purchasing Power Parity; Half-Life (search for similar items in EconPapers)
JEL-codes: C12 C22 F31 (search for similar items in EconPapers)
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Journal Article: Examining the evidence of purchasing power parity by recursive mean adjustment (2012)
Working Paper: Examining the Evidence of Purchasing Power Parity by Recursive Mean Adjustment (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:22712
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