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Decomposing the Persistence of Real Exchange Rates

Malliaropulos, Dimitrios, Panopoulou, Ekaterini, Pantelidis, Theologos, Pittis, Nikitas (2013) Decomposing the Persistence of Real Exchange Rates. Empirical Economics, 44 (3). pp. 1217-1242. ISSN 0377-7332. (doi:10.1007/s00181-012-0565-5) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided) (KAR id:34625)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided.
Official URL:
http://dx.doi.org/10.1007/s00181-012-0565-5

Abstract

We propose a newmethodology for decomposing the persistence of deviations

from purchasing power parity (PPP).By directly comparing the impulse response

function (IRF) of a vector autoregressive (VAR) model, where the real exchange rate is Granger caused by a set of candidate variables, with the IRF of the equivalent ARMA model for the real exchange rate, we capture the effects of the Granger-causing variables on the half-life of deviations from PPP. Our empirical results for a set of 20 industrial countries suggest that on average around 50% of the persistence of real exchange rates can be attributed to nominal interest rate differentials, inflation differentials and relative business cycle position with the numenaire country. Finally, we provide confidence intervals for the contributions of the aforementioned variables to the persistence of deviations from PPP by means of Monte Carlo simulations.

Item Type: Article
DOI/Identification number: 10.1007/s00181-012-0565-5
Uncontrolled keywords: Real exchange rate · Persistence measures · VAR · Impulse response function · PPP
Subjects: H Social Sciences
H Social Sciences > H Social Sciences (General)
Divisions: Divisions > Kent Business School - Division > Kent Business School (do not use)
Depositing User: Catherine Norman
Date Deposited: 12 Jul 2013 11:55 UTC
Last Modified: 05 Nov 2024 10:17 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/34625 (The current URI for this page, for reference purposes)

University of Kent Author Information

Panopoulou, Ekaterini.

Creator's ORCID: https://orcid.org/0000-0001-5080-9965
CReDIT Contributor Roles:

Pantelidis, Theologos.

Creator's ORCID:
CReDIT Contributor Roles:
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