Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions
May 1, 1998
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Summary
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.
Subject: Economic integration, Exchange rate analysis, Exchange rates, Foreign exchange, Monetary unions, Purchasing power parity, Real exchange rates
Keywords: country result, Europe, Exchange rate analysis, Exchange rates, mean reversion, Monetary unions, panel unit root test, Purchasing power parity, Real exchange rates, standard error, stationarity, testing method, WP
Pages:
17
Volume:
1998
DOI:
Issue:
069
Series:
Working Paper No. 1998/069
Stock No:
WPIEA0691998
ISBN:
9781451960846
ISSN:
1018-5941
Notes
Also published in Staff Papers, Vol. 46, No. 1, March 1999.
