Purchasing power parity and the long memory properties of real exchange rates: Does one size fit all?

Economic Modelling

Volumn 28, Issue 3, 2011, Pages 1279-1290

  Aloy, Marcel ^a   Boutahar, Mohamed ^b   Gente, Karine ^a   Péguin Feissolle, Anne ^b  

^a AIX MARSEILLE UNIVERSITY   (France)

^b Centre National de la Recherche Scientifique   (France)

Author keywords

C12; C22; C32; F30; F31; Fractional Integration; Long memory process; Mean reverting process; Nonlinear modelling

Indexed keywords

EID: 79953051130     PISSN: 02649993     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.econmod.2011.01.005     Document Type: Article

References (70)

1. Bahmani-Oskooee M., Hegerty S.W., Kutan A.M. Is PPP sensitive to time-varying trade weights in constructing real effective exchange rates?. The Quarterly Review of Economics and Finance 2008, 49(3):1001-1008.
2. Baum C.F., Barkoulas J.T., Caglayan M. Long memory or structural breaks: can either explain nonstationary real exchange rates under the current float?. Journal of International Financial Markets, Institutions and Money 1999, 9:359-376.
3. Bec F., Ben Salem M., Carrasco M. Tests for unit-root versus threshold specification with an application to the purchasing power parity relationship. Journal of Business & Economic Statistics 2004, 22:382-395.
4. Bergman M.U., Hansson J. Real exchange rates and switching regimes. Journal of International Money and Finance 2005, 24:121-138.
5. Campbell J.Y., Mankiw N.G. Are output fluctuations transitory?. Quarterly Journal of Economics 1987, 102:857-880.
6. Caporale G.M., Gil-Alana L.A. Mean reversion in the US treasury constant maturity rates 2007, Centre for International Capital Markets, Discussion Paper No 2007-5.
7. Caporale G.M., Gil-Alana L.A. Mean reversion in the nikkei, standard & poor and Dow Jones stock market indices 2007, Brunel University, Discussion Paper.
8. Caporale G.M., Gil-Alana L.A. Long-range forecasting in the S&P stock market index using fractional integration techniques 2007, Centre for International Capital Markets, Discussion Paper No 2007-4.
9. Caporale G.M., Cunado J., Gil-Alana L.A. Deterministic versus stochastic seasonal fractional integration and structural breaks 2007, Brunel University, Discussion Paper.
10. Cerrato M., Kim H., MacDonald R. Three-Regime asymmetric STAR modeling and exchange rate reversion. Journal of Money Credit and Banking 2010, 42(7):1447-1467.
11. Cheung Y.W., Lai K.S. A fractional cointegration analysis of purchasing power parity. Journal of Business and Economic Statistics 1993, 11:103-112.
12. Cheung Y.W., Lai K.S. Parity reversion in real exchange rates during the post-Bretton Woods period. Journal of International Money and Finance 1998, 17:597-614.
13. Cheung Y.W., Lai K.S. On the purchasing power parity puzzle. Journal of International Economics 2000, 52:321-330.
14. Cheung Y.W., Lai K.S. Nominal exchange rate flexibility and real exchange rate adjustment: evidence from dual exchange rates in developing countries 2005, CESIFO Working Paper n°1512.
15. Chortareas G., Kapetanios G. How puzzling is the PPP puzzle? An alternative half-life measure of convergence to PPP 2004, Working Papers 522, Queen Mary, University of London, School of Economics and Finance.
16. Choudhry T., McNown R., Wallace M. Purchasing Power Parity and the Canadian float in the 1950s. Review of Economics and Statistics 1991, 73(3):558-563.
17. Chowdhuri A., Sdogati R. Purchasing Power Parity in the major EMS countries: the role of price and exchange rates adjustment. Journal of Macroeconomics 1993, 15:25-45.
18. Christopoulos D.K., Leon-Ledesma M.A. Smooth breaks and non-linear mean reversion: post-Bretton Woods real exchange rates. Journal of International Money and Finance 2010, 29:1076-1093.
19. Cunado J., Gil-Alana L.A., Perez de Gracia F. Testing for stock market bubbles using nonlinear models and fractional integration. Applied Financial Economics 2007, 17:1313-1321.
20. Diebold F.X., Inoue A. Long memory and regime switching. Journal of Econometrics 2001, 105:131-159.
21. Dornbusch R. Expectations and exchange rate dynamics. Journal of Political Economy 1976, 84(6):1161-1176.
22. Drine I., Rault C. Purchasing power parity for developing and developed countries. What can we learn from nonstationary panel data models. Journal of Economic Surveys 2008, 22:752-773.
23. Dufrénot G., Mathieu L., Mignon V., Péguin-Feissolle A. Persistent misalignments of the European exchange rates: some evidence from nonlinear cointegration. Applied Economics 2006, 38:203-229.
24. Dufrénot G., Lardic S., Mathieu L., Mignon V., Péguin-Feissolle A. Explaining the European exchange rate deviations: long memory or nonlinear adjustment?. Journal of International Financial Markets, Institutions & Money 2008, 18:207-215.
25. Dumas B. Dynamic equilibrium and the real exchange rate in spatially separated world. Review of Financial Studies 1992, 5:153-180.
26. El-Gamal M.A., Ryu D. Short-memory and the PPP hypothesis. Journal of Economic Dynamics and Control 2006, 30:361-391.
27. Engel C., Morley J.C. The adjustment of prices and the adjustment of the exchange rate 2001, NBER Working Paper no. 8550.
28. Engle R.F., Granger C.W.J. Cointegration and error-correction: representation, estimation, and testing. Econometrica 1987, 55:251-276.
29. Frenkel J. A monetary approach to the exchange rate: doctrinal aspects and empirical evidence. Scandinavian Journal of Economics 1976, 78:200-224.
30. Geweke J., Porter-Hudak S. The estimation and application of long memory time series models. Journal of Time Series Analysis 1983, 4:221-238.
31. Gil-Alana L.A. Mean reversion in the real exchange rates. Economics Letters 2000, 69(3):285-288.
32. Gil-Alana L.A. Fractional integration and structural breaks at unknown periods of time. Journal of Time Series Analysis 2008, 29(1):163-185.
33. Gil-Alana L.A., Caporale G.M. Nonlinearities and fractional integration in the US unemployment rate 2006, WP No 18/06, Universidad de Navarra, Spain.
34. Gil-Alana L.A., Nazarski M. Strong dependence in the nominal exchange rates of the Polish zloty. Applied Stochastic Models in Business and Industry 2007, 23:97-116.
35. Gil-Alana L.A., Toro J. Estimation and testing of ARFIMA models in the real exchange rate. International Journal of Finance and Economics 2002, 7:279-298.
36. Granger C.W.J., Hyung N. Occasional structural breaks and long memory with an application to the S&P 500 absolute stock returns. Journal of Empirical Finance 2004, 11:399-421.
37. Granger C.W.J., Joyeux R. An introduction to long-memory time series models and fractional differencing. Journal of Time Series Analysis 1980, 1:15-29.
38. Haubrich J.G., Lo A.W. The source and nature of long-term memory in the business cycles 1989, Alfred P. Sloan School of Management Working Paper, n°3062-89-EFA.
39. Holmes M.J. Purchasing power parity and the fractional integration of the real exchange rate: new evidence for less developed countries. Journal of Economic Development 2002, 27(1):125-135.
40. Imbs J., Mumtaz H., Ravn M., Rey H. PPP strikes back: aggregation and the real exchange rate. The Quarterly Journal of Economics 2005, 120(1):1-43.
41. Kanas A. Purchasing power parity and Markov regime switching. Journal of Money, Credit and Banking 2006, 38:1669-1687.
42. Kapetanios G., Shin Y., Snell A. Testing for a unit root in the nonlinear STAR framework. Journal of Econometrics 2003, 112(2):359-379.
43. Kilian L., Taylor M.P. Why is it so difficult to beat the random walk forecast of exchange rates?. Journal of International Economics 2003, 60(1):85-107.
44. Kiliç R. Further on nonlinearity, persistence, and integration properties of real exchange rates. Journal of International Financial Markets, Institutions and Money 2009, 19:207-221.
45. Kruse R., Frömmel M., Menkhoff L., Sibbertsen P. What do we know about real exchange rate non-linearities? 2009, CREATES Research Papers 2009-50, School of Economics and Management, University of Aarhus.
46. Kwiatowski D., Phillips P.C.B., Schmidt P., Shin Y. Testing the null hypothesis of stationarity against the alternative of a unit root: how sure are we that economic time series have a unit root?. Journal of Econometrics 1992, 54:159-178.
47. Lee D., Schmidt P. On the power of KPSS test of stationarity against fractionally integrated alternatives. Journal of Econometrics 1996, 73:285-302.
48. McMillan D. The confusing time-series behavior of real exchange rates: are asymmetries important?. Journal of International Financial Markets, Institutions and Money 2009, 19(4):692-711.
49. Obstfeld M., Taylor A.M. Non-linear aspects of goods-market arbitrage and adjustment: Heckscher's commodity point revisited. Journal of Japanese and International Economics 1997, 11:441-479.
50. Park J.Y., Shintani M. Testing for a unit root against transitional autoregressive models 2005, Working Papers 05010, Department of Economics, Vanderbilt University.
51. Perron P. The great crash, the oil price shock, and the unit root hypothesis. Econometrica 1989, 57(6):1361-1401.
52. Perron P., Qu Z. An analytical evaluation of the log-periodogram estimate in the presence of level shifts and its implications for stock returns volatility 2004, Working Paper, Boston University.
53. Perron P., Qu Z. Long-memory and level shifts in the volatility of stock market return indices. Journal of Business & Economic Statistics 2010, 28(2):275-290.
54. Robinson P.M. Efficient tests of nonstationary hypotheses. Journal of the American Statistical Association 1994, 89:1420-1437.
55. Robinson P.M. Log-periodogram regression of time series with long range dependence. Annals of Statistics 1995, 23:1048-1072.
56. Rogoff K.S. The purchasing power parity puzzle. Journal of Economic Literature 1996, 34:647-668.
57. Sarno L., Taylor M.P. Official intervention in the foreign exchange market: is it effective and, if so, how does it work?. Journal of Economic Literature 2001, 39(3):839-868.
58. Sercu P., Uppal R., Van Hulle C. The exchange rate in the presence of transactions costs: implications for tests of purchasing power parity. Journal of Finance 1995, 50:1309-1319.
59. Shimotsu K. Exact local Whittle estimation of fractional integration with unknown mean and time trend 2006, Working Paper N. 1061, Queen's University, Canada.
60. Shimotsu K., Phillips P.C.B. Local Whittle estimation in nonstationary and unit root cases. Annals of Statistics 2004, 32(2):656-692.
61. Shimotsu K., Phillips P.C.B. Exact local Whittle estimation of fractional integration. Annals of Statistics 2005, 33(4):1890-1933.
62. Shimotsu K., Phillips P.C.B. Local Whittle estimation of fractional integration and some of its variants. Journal of Econometrics 2006, 130:209-233.
63. Smith A. Level shifts and the illusion of long memory in economic time series. Journal of Business and Economic Statistics 2005, 23(3):321-335.
64. Sollis R. U.S. dollar exchange rates: nonlinearity revisited. Journal of International Money and Finance 2008, 27:516-528.
65. Taylor A.M. Potential pitfalls for the purchasing-power-parity-puzzle? Sampling and specification biases in mean-reversion tests of the law of one price. Econometrica 2001, 69:473-498.
66. Taylor M.P. Purchasing Power Parity. Review of International Economics 2003, 11(3):436-452.
67. Taylor M.P. Real exchange rates and purchasing Power Parity: mean-reversion in economic thought. Applied Financial Economics 2006, 16:1-17.
68. Taylor A.M., Taylor M.P. The purchasing power parity debate 2004, NBER Working Paper No. 10607.
69. Taylor M.P., Peel D.A., Sarno L. Nonlinear mean-reversion in real exchange rates: towards a solution to the purchasing parity puzzles. International Economic Review 2001, 42:1015-1042.
70. Villeneuve J.-F., Handa J. Purchasing Power Parity as a long-term memory process: evidence from Canada. Applied Financial Economics 2006, 16:109-117.