Revisiting the persistence of real exchange rates

Abstract In this paper we provide new and robust evidence that panel regressions significantly reduce the estimated half-lives of real exchange rates in a sample of 21 countries. These results are obtained under dynamic panel models that control for non-purchasing power parity (PPP) equilibria. Small-sample bias does not have a significant impact on half-lives, since the increase in the half-life arising from the bias is more than compensated by the decrease of the half-life due to the control of non-PPP equilibria. Among the two sources of non-PPP equilibria, i.e., first, the Balassa-Samuelson effect and second, smooth shifts in mean, we find that, under a heterogeneous panel model, the first source results in a larger reduction of half-lives.

• Publication year

  2020

• Venue

  Journal of International Money and Finance

• Publication date

  2020-05-01

• Fields of study

  Economics

• Identifiers
  DOI 10.1016/j.jimonfin.2019.102133
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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