Long-Run Exchange Rate Dynamics: A Panel Data Study

ByKarl F Habermeier, Mario M Mesquita

April 1, 1999

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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

Long-run movements of real exchange rates are studied using a panel data set comprising 51 economies. The purchasing power parity hypothesis (PPP) is examined first using unit root tests. It is found that PPP does not hold for the full sample of countries, but it may hold for the advanced economies, as well as open and high-inflation economies. Using the recently developed mean group and pooled mean group estimators, the paper finds support for the Balassa-Samuelson hypothesis in both advanced and developing economies; and for the influence of shifts in the terms of trade.

Subject: Exchange rates, Foreign exchange, Inflation, International trade, Nominal effective exchange rate, Prices, Purchasing power parity, Real exchange rates, Terms of trade

Keywords: Africa, Balassa-Samuelson Effect, exchange rate depreciation, Exchange Rates, Global, Inflation, inflation economy, mean group, MG estimate, Panel Data Econometrics, PPP hypothesis, Purchasing power parity, Purchasing Power Parity (PPP), Real exchange rates, Terms of Trade, terms of trade effect, WP

Pages:
25
Volume:
1999
DOI:
https://doi.org/10.5089/9781451846959.001
Issue:
050
Series:
Working Paper No. 1999/050
Stock No:
WPIEA0501999
ISBN:
9781451846959
ISSN:
1018-5941

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