Deviations of Exchange Rates from Purchasing Power Parity : A Story Featuring Two Monetary Unions

Author/Editor:

Ronald MacDonald ; Tamim Bayoumi

Publication Date:

May 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Series:

Working Paper No. 98/69

Subject:

Notes:

Also published in Staff Papers, Vol. 46, No. 1, March 1999.

English

Publication Date:

May 1, 1998

ISBN/ISSN:

9781451960846/1018-5941

Stock No:

WPIEA0691998

Format:

Paper

Pages:

17

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