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Real Exchange Rate Persistence and Country Characteristics

Michael Curran () and Adnan Velic ()

No 31, Villanova School of Business Department of Economics and Statistics Working Paper Series from Villanova School of Business Department of Economics and Statistics

Abstract: This paper examines the persistence of real exchange rates across the world. We employ univariate time series techniques on a country-by-country basis allowing for deterministic structural breaks and nonlinearities in the adjustment process. Our findings suggest that bilateral exchange rates display higher rates of persistence than multilateral exchange rates, with the latter exhibiting half-lives of less than 1 year. Meanwhile, industrial countries are found to display higher levels of exchange rate inertia than developing countries. We retrieve evidence indicating that higher inflation, nominal exchange rate volatility, trade openness and proximity to reference country are associated with faster rates of real exchange rate convergence. Conversely, international financial integration is only found to be a significant factor at the country group level, with differential effects across cohorts.

Keywords: Real Exchange Rate; Parity Deviations; Cross-Country Persistence Differences; Structural Determinants (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2016-10
New Economics Papers: this item is included in nep-int and nep-opm
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http://repec.library.villanova.edu/workingpapers/VSBEcon31.pdf (application/pdf)

Related works:
Journal Article: Real exchange rate persistence and country characteristics: A global analysis (2019) Downloads
Working Paper: Real Exchange Rate Persistence and Country Characteristics (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:vil:papers:31

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