Real exchange rates and Purchasing Power Parity: Mean-reversion in economic thought

Applied Financial Economics

Volumn 16, Issue 1-2, 2006, Pages 1-17

  Taylor, Mark P ^a  

^a UNIVERSITY OF WARWICK   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

ECONOMIC POLICY; EXCHANGE RATE; MODEL;

EID: 31744444959     PISSN: 09603107     EISSN: None     Source Type: Journal    
DOI: 10.1080/09603100500390067     Document Type: Review

References (132)

1. Abuaf, N and Jorion, P. (1990) Purchasing Power Parity in the long run Journal of Finance, 45, pp. 157 - 174.
2. Adler, M and Lehmann, B. (1983) Deviations from Purchasing Power Parity in the long run Journal of Finance, 38, pp. 1471 - 1487.
3. Andrews, DWK and Chen, HY. (1994) Approximately median-unbiased estimation of autoregressive models Journal of Business and Economic Statistics, 12, pp. 187 - 204.
4. Asea, PK and Mendoza, EG. Do long-run productivity differential explain long-run exchange rates?. 1994. In IMF Working Papers 94/60 [pp.].
5. Balassa, B. (1964) The Purchasing Power Parity doctrine: A reappraisal The Journal of Political Economy, 28, pp. 303 - 319.
6. Baum, B and Barkoulas, J and Caglayan, M. (1999) Fractional monetary dynamics Applied Economics, 31, pp. 1393 - 1400.
7. Benninga, S and Protopapadakis, AA. (1988) The equilibrium pricing of exchange rates and assets when trade takes time Journal of International Economics, 7, pp. 129 - 149.
8. Breuer, JB.(1994) An assessment of the evidence on Purchasing Power Parity. In Estimating Equilibrium Exchange Rates. (pp. 245 - 277). Washington DC: Institute for International Economics.
9. Caner, MK and Kilian, L. (2001) Size distortions of tests of the null hypothesis of stationarity: Evidence and implications for the PPP debate Journal of International Money and Finance, 20, pp. 639 - 657.
10. Canzoneri, B and Cumby, RE and Diba, B. (1999) Relative labour productivity and the real exchange rate in the long run: Evidence for a panel of OECD countries Journal of International Economics, 47, pp. 245 - 266.
11. Cassel, G. (1916) The present situation of the foreign exchanges I Economic Journal, 26, pp. 62 - 65.
12. Cassel, G. (1918) Abnormal deviations in international exchanges Economic Journal, 28, pp. 413 - 415.
13. Cassel, G.(1922) Money and Foreign Exchange After 1914. London: Constable.
14. Cassel, G.(1928a). In Foreign Investments.. Chicago: Lectures of the Harris Foundation, Chicago, University of Chicago Press.
15. Cassel, G.(1928b) Post-War Monetary Stabilization. New York: Columbia University Press.
16. Cheung, YW and Lai, KS. (1993a) A fractional cointegration analysis of Purchasing Power Parity Journal of Business and Economic Statistics, 11, pp. 103 - 112.
17. Cheung, YW and Lai, KS. (1993b) Long-run Purchasing Power Parity during the recent float Journal of International Economics, 34, pp. 181 - 192.
18. Cheung, YW and Lai, KS. (1994) Mean reversion in real exchange rates Economics Letters, 46, pp. 251 - 256.
19. Cheung, YW and Lai, KS. (1998) Parity reversion in real exchange rates during the post-Bretton Woods period Journal of International Money and Finance, 17, pp. 597 - 614.
20. Cheung, YW and Lai, KS. (2000) On the purchasing power puzzle Journal of International Money and Finance, 19, pp. 753 - 757.
21. Chinn, MD. The usual suspects? Productivity and demand shocks and Asia-Pacific real exchange rates. 1997. In Pacific Basin Working Paper Series 97-106 [pp.].
22. Chinn, MD and Johnston, L. Real exchange rate levels, productivity and demand shocks: Evidence from a panel of 14 countries. 1997. In IMF Working Papers 97/66 [pp.].
23. Chowdhuri, A and Sdogati, R. (1993) Purchasing Power Parity in the major EMS countries: The role of price and exchange rate adjustment Journal of Macroeconomics, 15, pp. 25 - 45.
24. Choudhry, T and McNown, R and Wallace, M. (1991) Purchasing Power Parity and the Canadian float in the 1950s Review of Economics and Statistics, 73, pp. 558 - 563.
25. Coakley, J and Flood, R and Fuertes, A-M and Taylor, MP. (2005) Long-run Purchasing Power Parity and the theory of general relativity: The first tests Journal of International Money and Finance, 24, pp. 293 - 316.
26. Coakley, J and Fuertes, AM. (1997) New panel unit root tests of PPP Economics Letters, 57, pp. 17 - 22.
27. Cochrane, JH. (1988) How big is the random walk in GDP? Journal of Political Economy, 96, pp. 893 - 920.
28. Coleman, AMG. Arbitrage, storage and the law of one price: New theory for the time series analysis of an old problem. 1995. Discussion Paper [pp.].
29. Culver, SE and Papell, DH. (1999) Long-run Purchasing Power Parity with short-run data: Evidence with a null hypothesis of stationarity Journal of International Money and Finance, 18, pp. 751 - 769.
30. De Gregario, J and Giovannini, A and Wolf, HC. (1994) International evidence on tradeable and nontradeables inflation European Economic Review, 38, pp. 1225 - 1244.
31. Diebold, FX and Husted, S and Rush, M. (1991) Real exchange rates under the gold standard Journal of Political Economy, 99, pp. 1252 - 1271.
32. Dixit, AK. (1989) Hysteresis, import penetration and exchange rate pass-through Quarterly Journal of Economics, 104, pp. 205 - 228.
33. Dornbusch, R and Krugman, P. (1976) Flexible exchange rates in the short run Brookings Papers on Economic Activity, 3, pp. 537 - 575.
34. Dumas, B. (1992) Dynamic equilibrium and the real exchange rate in spatially separated world Review of Financial Studies, 5, pp. 153 - 180.
35. Edison, H. (1987) Purchasing Power Parity in the long run Journal of Money, Credit and Banking, 19, pp. 376 - 387.
36. Einzig, P.(1967) Foreign Exchange Crisis. London: Macmillan.
37. Elliott, G and Stock, J. (2001) Confidence intervals for autoregressive coefficients near one Journal of Political Economy, 99, pp. 1252 - 1271.
38. Enders, W. (1988) ARIMA and cointegration tests of PPP under fixed and flexible exchange rate regimes Review of Economics and Statistics, 70, pp. 504 - 508.
39. Engel, C. (1999) Accounting for US real exchange rate changes Journal of Political Economy, 107, pp. 507 - 538.
40. Engel, C. (2000) Long-run PPP may not hold after all Journal of International Economics, 51, pp. 243 - 273.
41. Engle, RF and Granger, CWJ. (1987) Co-integration and error correction: representation, estimation, and testing Econometrica, 55, pp. 251 - 276.
42. Engel, C and Kim, C-J. (1999) The long-run US/UK real exchange rate Journal of Money, Credit and Banking, 31, pp. 335 - 356.
43. Flood, RP and Taylor, MP.(1996) Exchange rate economics: What's wrong with the conventional macro approach?. In The Microstructure of Foreign Exchange Markets.. Chicago: Chicago University Press.
44. Frankel, JA.(1986) International capital mobility and crowding out in the US economy: Imperfect integration of financial markets or goods markets?. In How Open is the US Economy?.. Lexington: Lexington Books.
45. Frankel, JA and Rose, AK. (1996) A panel project on Purchasing Power Parity: Mean reversion within and between countries Journal of International Economics, 40, pp. 209 - 224.
46. Fraser, P and Webster, A and Taylor, MP. (1991) An empirical examination of long-run Purchasing Power Parity as a theory of international commodity arbitrage Applied Economics, 23, pp. 1749 - 1760.
47. Frenkel, JA. (1976) A monetary approach to the exchange rate: Doctrinal aspects and empirical evidence Scandinavian Journal of Economics, 78, pp. 200 - 224.
48. Frenkel, JA. (1978) Purchasing Power Parity: Doctrinal perspective and evidence from the 1920s Journal of International Economics, 8, pp. 169 - 191.
49. Frenkel, JA. (1981) The collapse of Purchasing Power Parities during the 1970's European Economic Review, 16, pp. 145 - 165.
50. Frenkel, JA and Johnson, HG.(1978) The Economics of Exchange Rates. Reading MA: Addison-Wesley.
51. Friedman, M and Schwartz, AJ.(1963) A Monetary History of the United States: 1867-1960. Princeton NJ: Princeton University Press for the National Bureau of Economic Research.
52. Froot, K and Rogoff, K. (1991) The EMS, the EMU, and the transition to a common currency NBER Macroeconomics Annual, 6, pp. 267 - 317.
53. Froot, KA and Rogoff, K.(1995) Perspectives on PPP and long-run real exchange rates. In Handbook of International Economics.. Amsterdam: North Holland.
54. Granger, CWJ and Newbold, P. (1974) Spurious regressions in econometrics Journal of Econometrics, 2, pp. 111 - 120.
55. Granger, CWJ and Terasvirta, T.(1993) Modelling Nonlinear Economic Relationships. Oxford: Oxford University Press.
56. Grice-Hutchison, M.(1952) The School of Salamanca: Readings in Spanish Monetary Theory, 1544-1605. Oxford: Clarendon Press.
57. Grilli, V and Kaminsky, G. (1991) Nominal exchange rate regimes and the real exchange rate: Evidence for the United States and Great Britain, 1885-1986 Journal of Monetary Economics, 27, pp. 191 - 212.
58. Harrod, R.(1933) International Economics. London: Nisbet and Cambridge University Press.
59. Heckscher, EF. (1916) VÄxelkurens Grundval Vid Pappersmynfot Economisk Tidskrift, 18, pp. 309 - 312.
60. Hegwood, ND and Papell, DH. (1998) Quasi Purchasing Power Parity International Journal of Finance and Economics, 3, pp. 279 - 289.
61. Huizinga, J. (1987) An empirical investigation of the long-run behavior of real exchange rates Carnegie Rochester Conference Series on Public Policy, 27, pp. 149 - 214.
62. Hume, D.(1752) Political Discourses. Edinburgh
63. Imbs, J and Mumtaz, H and Ravn, M and Rey, H.. PPP strikes back: aggregation and the real exchange rate. 2002. In National Bureau for Economic Research Working Paper 9372 [pp.].
64. Imbs, J and Mumtaz, H and Ravn, M and Rey, H. (2005) PPP strikes back: aggregation and the real exchange rate Quarterly Journal of Economics, 120, pp. 1 - 43.
65. Johansen, S. (1988) Statistical analysis of cointegrating vectors Journal of Economic Dynamics and Control, 12, pp. 231 - 254.
66. Johnson, DR.(1993) Unit roots, cointegration and Purchasing Power Parity: Canada and the United States, 1870-1991. In The Exchange Rate and the Economy: Proceedings of a Conference Held at the Bank of Canada 22-23 June 1992. (pp. 133 - 198). Ottawa: Bank of Canada.
67. Keynes, JM.(1923) A Tract on Monetary Reform. London: Macmillan.
68. Keynes, JM.(1925) The Economic Consequences of Mr Churchill. London: Macmillan.
69. Kilian, L and Taylor, MP. (2003) Why is it so difficult to beat the random walk forecast of exchange rates? Journal of International Economics, 60, pp. 85 - 107.
70. Kim, Y. (1990) Purchasing Power Parity in the long run: A cointegration approach Journal of Money, Credit, and Banking, 22, pp. 491 - 503.
71. Kravis, IB and Lipsey, RE. (1988) National price levels and the prices of tradables and nontradables American Economic Review, 78, pp. 474 - 478.
72. Kugler, P and Lenz, C. (1993) Multivariate cointegration analysis and the long-run validity of PPP The Review of Economics and Statistics, 75, pp. 180 - 184.
73. Kwiatkowski, D and Phillips, PCB and Schmidt, P and Shin, Y. (1992) Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic series have a unit root Journal of Econometrics, 54, pp. 159 - 178.
74. Laidler, DEW. (1981) Monetarism - an interpretation and an assessment Economic Journal, 91, pp. 1 - 21.
75. Layton, AP and Stark, JP. (1990) Cointegration as an empirical test of Purchasing Power Parity Journal of Macroeconomics, 12, pp. 125 - 136.
76. Lothian, JR. (1997a) What Salamanca scholastics can teach our social thinkers today The Brandsma Review, 29, pp. 1 - 4.
77. Lothian, JR. (1997b) Multi-country evidence on the behavior of Purchasing Power Parity under the current float Journal of International Money and Finance, 16, pp. 19 - 35.
78. Lothian, JR. (1998) Some new stylized facts of floating exchange rates Journal of International Money and Finance, 17, pp. 29 - 39.
79. Lothian, JR and Taylor, MP. (1996) Real exchange rate behavior: The recent float from the perspective of the past two centuries Journal of Political Economy, 104, pp. 488 - 510.
80. Lothian, JR and Taylor, MP. (1997) Real exchange rate behavior: The problem of power and sample size Journal of International Money and Finance, 16, pp. 945 - 954.
81. Lothian, JR and Taylor, MP. (2000) Purchasing Power Parity over two centuries: Strengthening the case for real exchange rate stability Journal of International Money and Finance, 19, pp. 759 - 764.
82. Lothian, JR and Taylor, MP.(2005) Real exchange rates over the past two centuries: How important is the Harrod-Balassa-Samuelson effect?. In. mimeo, University of Warwick.
83. Luintel, KB. (2000) Real exchange rate behaviour: Evidence from black markets Journal of Applied Econometrics, 15, pp. 161 - 185.
84. Mark, N. (1990) Real and nominal exchange rates in the long run: An empirical investigation Journal of International Economics, 28, pp. 115 - 136.
85. Marston, R.(1987) Real exchange rates and productivity growth in the United States and Japan. In Real-Financial Linkages Among Open Economies.. Cambridge: MIT Press.
86. Moggridge, DE.(1972) British Monetary Policy 1924-1931: The Norman Conquest of $4.8. Cambridge: Cambridge University Press.
87. Murray, C and Papell, DH. (2002) The Purchasing Power Parity persistence paradigm Journal of International Economics, 56, pp. 1 - 19.
88. Obstfeld, M and Taylor, AM. (1997) Non-linear aspects of goods-market arbitrage and adjustment: Heckscher's commodity point revisited Journal of Japanese and International Economics, 11, pp. 441 - 479.
89. O'Connell, PGJ.(1997) Perspectives on Purchasing Power Parity. In. Harvard University.
90. O'Connell, PGJ. (1998) The overvaluation of Purchasing Power Parity Journal of International Economics, 44, pp. 1 - 19.
91. O'Connell, PGJ and Wei, S-J. (2002) The bigger they are, the harder they fall: How price differences between US cities are arbitraged Journal of International Economics, 56, pp. 21 - 53.
92. Ohanian, LE and Stockman, AC. Arbitrage costs and exchange rates. 1997. In Discussion Paper [pp.].
93. Papell, DH. (1997) Searching for stationarity: Purchasing Power Parity under the current float Journal of International Economics, 43, pp. 313 - 332.
94. Papell, DH and Theodoridis, H. (1998) Increasing evidence of Purchasing Power Parity over the current float Journal of International Money and Finance, 17, pp. 41 - 50.
95. Parkes, ALH and Savvides, A. (1999) Purchasing Power Parity in the long run and structural breaks: Evidence from real sterling exchange rates Applied Financial Economics, 9, pp. 117 - 127.
96. Parsley, D. Accounting for real exchange rate changes in East Asia. 2001. In Working Paper #6 [pp.].
97. Parsley, DC and Wei, S-J. (1996) Convergence to the law of one price without trade barriers or currency fluctuations Quarterly Journal of Economics, 111, pp. 1211 - 1236.
98. Phillips, PCB and Moon, HR. (1999) Linear regression limit theory for non-stationary panel data Econometrica, 67, pp. 1057 - 1111.
99. Phylaktis, K and Kassimatis, Y. (1994) Does the real exchange rate follow a random walk? The Pacific Basin perspective Journal of International Money and Finance, 13, pp. 476 - 495.
100. Ricardo, D.(1821) On the Principles of Political Economy and Taxation. London: John Murray.
101. Rogers, JH and Jenkins, M. (1995) Haircuts or hysteresis? Sources of movements in real exchange rates Journal of International Economics, 8, pp. 341 - 351.
102. Rogoff, K. (1996) The Purchasing Power Parity puzzle Journal of Economic Literature, 34, pp. 647 - 668.
103. Roll, R.(1979) Violations of Purchasing Power Parity and their implications for efficient international commodity markets. In International Finance and Trade.. Cambridge MA: Ballinger.
104. Rossi, B. Confidence intervals for half-life deviations from Purchasing Power Parity. 2002. In Working Paper [pp.].
105. Samuelson, PA. (1964) Theoretical notes on trade problems Review of Economics and Statistics, 46, pp. 145 - 154.
106. Sarno, L and Taylor, MP. (1998) Real exchange rates under the recent float: Unequivocal evidence of mean reversion Economics Letters, 60, pp. 131 - 137.
107. Sarno, L and Taylor, MP. (2001) Official intervention in the foreign exchange market: Is it effective and, if so, how does it work? Journal of Economic Literature, 39, pp. 839 - 868.
108. Sarno, L and Taylor, MP. (2002a) Purchasing Power Parity and the real exchange rate International Monetary Fund Staff Papers, 49, pp. 65 - 105.
109. Sarno, L and Taylor, MP.(2002b) The Economics of Exchange Rates. Cambridge: Cambridge University Press.
110. Sarno, L and Taylor, MP and Chowdhury, I. (2004) Non-linear dynamics in deviations from the law of one price: A broad-based empirical study Journal of International Money and Finance, 23, pp. 1 - 25.
111. Sercu, P and Uppal, R and Van Hulle, C. (1995) The exchange rate in the presence of transactions costs: Implications for tests of Purchasing Power Parity Journal of Finance, 50, pp. 1309 - 1319.
112. Shiller, RJ and Perron, P. (1985) Testing the random walk hypothesis: power versus frequency of observation Economics Letters, 18, pp. 381 - 386.
113. Strauss, J. (1999) Productivity differentials, the relative price of nontradeables and real exchange rates Journal of International Money and Finance, 18, pp. 383 - 409.
114. Taylor, AM. (2001) Potential pitfalls for the Purchasing Power Parity puzzle? Sampling and specification biases in mean reversion tests of the law of one price Econometrica, 69, pp. 473 - 498.
115. Taylor, AM. (2002) A century of Purchasing Power Parity Review of Economics and Statistics, 84, pp. 139 - 150.
116. Taylor, AM and Taylor, MP. (2004) The Purchasing Power Parity debate Journal of Economic Perspectives, 18, pp. 135 - 158.
117. Taylor, MP. (1988) An empirical examination of long-run Purchasing Power Parity using cointegration techniques Applied Economics, 20, pp. 1369 - 1381.
118. Taylor, MP. (1992) The dollar-sterling exchange rate in the 1920s: Purchasing Power Parity and the Norman conquest of $4.86 Applied Economics, 24, pp. 803 - 811.
119. Taylor, MP. (1995) The economics of exchange rates Journal of Economic Literature, 33, pp. 13 - 47.
120. Taylor, MP. (2004) Is official exchange rate intervention effective? Economica, 71, pp. 1 - 12.
121. Taylor, MP. (2005) Official foreign exchange intervention as a coordinating signal in the dollar-yen market Pacific Economic Review, 10, pp. 73 - 82.
122. Taylor, MP and McMahon, PC. (1988) Long-run Purchasing Power Parity in the 1920s European Economic Review, 32, pp. 179 - 197.
123. Taylor, MP and Peel, DA. (2000) Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals Journal of International Money and Finance, 19, pp. 33 - 53.
124. Taylor, MP and Peel, DA and Sarno, L. (2001) Nonlinear mean-reversion in real exchange rates: Towards a solution to the Purchasing Power Parity puzzles, Centre for Economic Policy Research Discussion Paper 2658 International Economic Review, 42, pp. 1015 - 1042.
125. Taylor, MP and Sarno, L. (1998) The behavior of real exchange rates during the post-Bretton Woods period Journal of International Economics, 46, pp. 281 - 312.
126. Wheatley, J.(1807). In An Essay on the Theory of Money and Principles of Commerce. London
127. Wheatley, J.(1822). In An Essay on the Theory of Money and Principles of Commerce. London
128. Williams, JC and Wright, BD.(1991) Storage and Commodity Markets. Cambridge: Cambridge University Press.
129. Wu, Y. (1996) Are real exchange rates non-stationary?: Evidence from a panel-data test Journal of Money, Credit and Banking, 28, pp. 54 - 63.
130. Wu, J-L and Chen, S-L. (1999) Are real exchange rates stationary based on panel unit-root tests? Evidence from Pacific Basin countries International Journal of Finance and Economics, 4, pp. 243 - 252.
131. Xu, Z. (2003) Purchasing Power Parity, price indices, and exchange rate forecasts Journal of International Money and Finance, 22, pp. 105 - 135.
132. Zellner, A. (1962) An efficient method of estimating seemingly unrelated regressions and tests of aggregation bias Journal of the American Statistical Association, 57, pp. 500 - 509.