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Half-Life Deviations from PPP in the SADC

Thabo Mokoena (), Rangan Gupta () and Renee van Eyden ()
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Thabo Mokoena: South African Reserve Bank, Pretoria

No 200823, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper utilises various recently developed econometric methods to obtain better approximations to the half-life for real exchange rates of ten South African Development Community (SADC) countries and to generate confidence intervals for half-life deviations from the purchasing power parity (PPP). The robust methods of Stock (1991), Elliott and Stock (2001), and Hansen (1999) imply that point estimates of less than 36 months exist, making them compatible with PPP. However, the results of ADF and ADF-GLS tests render the SADC real exchange rates as nonstationary processes, a result that is patently at odds with mean-reversion, implying at the same time the possibility of infinite half-lives. Therefore the empirical results appearing in this paper do not convincingly resolve the half-life version of the PPP puzzle and leaves room for future research in the directions of non-parametric methods and median unbiased confidence intervals.

Keywords: PPP; Half-life; Real Exchange Rates (search for similar items in EconPapers)
JEL-codes: C12 C15 C23 F30 F31 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2008-07
New Economics Papers: this item is included in nep-cba and nep-ifn
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