{
  "title": "Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions",
  "publication": "IMF Working Papers, May 1, 1998",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/deviations-of-exchange-rates-from-purchasing-power-parity-a-story-featuring-two-monetary-2594",
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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.",
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      "heading": "Summary and main findings",
      "content": "- The paper examines 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.\n- Main empirical result: while the international real rates taken as a group appear mean-reverting, the intra-national rates are not.\n- Interpretation provided: this pattern is consistent with the view that monetary shocks may be mean-reverting over the medium term, whereas underlying real factors do generate long-term trends in real exchange rates."
    },
    {
      "heading": "Methodology and analytical approach",
      "content": "- Comparative unit root analysis of three groups:\n  - a group of international real exchange rates,\n  - two groups of intra-national real exchange rates.\n- Use of panel unit root test and stationarity testing methods (as indicated by keywords)."
    },
    {
      "heading": "Implications and interpretation",
      "content": "- Monetary shocks:\n  - May be mean-reverting over the medium term (consistent with observed mean reversion in international real rates).\n- Real factors:\n  - May generate long-term trends in real exchange rates (consistent with lack of mean reversion in intra-national rates).\n- Implication for Purchasing Power Parity (PPP) analysis:\n  - Deviations from PPP can reflect different dynamics across international versus intra-national contexts, with persistence driven by real factors within countries.\n\n---\n\n Content in this bundle\n\n- wp9869\n  - wp9869 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp9869 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/deviations-of-exchange-rates-from-purchasing-power-parity-a-story-featuring-two-monetary-2594"
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    "Authors: Ronald MacDonald, Tamim Bayoumi",
    "Published: May 1, 1998",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451960846.001",
    "The paper examines 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.",
    "Main empirical result: while the international real rates taken as a group appear mean-reverting, the intra-national rates are not.",
    "Interpretation provided: this pattern is consistent with the view that monetary shocks may be mean-reverting over the medium term, whereas underlying real factors do generate long-term trends in real exchange rates.",
    "Comparative unit root analysis of three groups:",
    "Use of panel unit root test and stationarity testing methods (as indicated by keywords).",
    "Monetary shocks:",
    "Real factors:",
    "Implication for Purchasing Power Parity (PPP) analysis:",
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