Nominal exchange rate regimes and the real exchange rate

Grilli, Vittorio; Kaminsky, Graciela

doi:10.1016/0304-3932(91)90041-l

Cited by 181 publications

(31 citation statements)

References 12 publications

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“…In contrast, Frankel (1986Frankel ( , 1989 argued that martingale hypotheses for the US/UK real exchange rate can be rejected with a sufficient long span of data. Similar evidence was found in Grilli and Kaminsky (1989), Hakkio and Jones (1990) and Lothian (1990), with different datasets.…”

Section: Introductionsupporting

confidence: 85%

Estimation and testing of ARFIMA models in the real exchange rate

Gil-Alana

Toro

2002

Int. J Fin Econ

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The Purchasing Power Parity (PPP) hypothesis is one of the most important theoretical relationships in international economics. However, its empirical support remains controversial. We propose an alternative way of modelling the real exchange rate in five industrialized countries in relation to the US dollar, by means of fractionally integrated ARIMA models (i.e. ARFIMA). This approach allows us to capture the low-frequency dynamics relevant for examination of the long-run parity. A crucial fact when estimating with parametric approaches is that the model must be correctly specified, otherwise the estimates are likely to be inconsistent. In fact, misspecification of the short-run components of the series can invalidate the estimation of its long-run behaviour. We propose a model selection criterion based on LR tests on nested parametric hypotheses along with other several likelihood-based criteria. As a validation method of the specified model, we suggest the use of Robinson's (1994) tests. Our empirical results indicate that the PPP might hold as a long-run proposition.

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Section: Introductionsupporting

confidence: 85%

Estimation and testing of ARFIMA models in the real exchange rate

Gil-Alana

Toro

2002

Int. J Fin Econ

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“…For example, in which Kim (1990) [4] used Granger -Engle two step method and the exchange rate data of five industrialized countries during 1900 to 1987 for test purchasing power parity, the results do not fully support the purchasing power parity. Grilli and Kaminsky (1991) [5] used the annual data during 1885-1986 and wholesale price index for study the real exchange rate of the Dollar against the Pound, the results support the purchasing power parity. Similarly, there are a lot of literatures about the study of purchasing power parity of RMB, which mainly use the above methods to study.…”

Section: The Results Of Former Testmentioning

confidence: 70%

A Study on Chinese Real Exchange Rate

Pan¹

2018

Proceedings of the 2018 5th International Conference on Management Science and Management Innovation (MSMI 2018)

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Abstract. Purchasing power parity theory is often used as an important basis for exchange rate policy, and also the most widely used in the theory of exchange rate decision. Since July 21, 2005, the exchange rate system of China is relatively stable, and also the economic development is the same. Therefore, this paper took the nominal exchange rate of RMB against the Dollar and the consumer's price index of China and US in the past 10 years as a sample, used unit root test and co integration test for purchasing power parity checking. The results show that the purchasing power parity is not applicable to the real exchange rate of RMB.

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“…Roll (1979), Alder and Lehmann (1983), Mussa (1986), Baillie and Selover (1987), Corhae and Ouliaris (1988), Taylor (1988), Diebold (1988), Meese and Rogoff (1988), Baillie and McMahon (1989), and Layton and Stark (1990) present results suggesting that exchange rates do not tend to PPP levels even over long periods of time, while the findings of Frankel (1986Frankel ( , 1989, Grilli and Kaminsky (1989), Hakkio and Joines (1990), Lothian (1990), Diebold et 01. (1991), Kaminsky (1987), andGlenn (1989) suggest that exchange rates cvcntually revert to PPP levels. 2Hakkio (1992) examines in a less formal way the probability of moving toward PPP after a deviation has occurred.…”

Section: Basic Specification Of the Hazard Functionmentioning

confidence: 59%

Can purchasing power parity help forecast the dollar?

Cochran

DeFina

1995

Journal of Forecasting

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This paper examines the information on future exchange rate movements provided by the doctrine of purchasing power parity (PPP). Previous research has studied this issue by analysing the time-series properties of period-by-period levels of, or changes in, exchange rates. In contrast, the present study focuses on the durations of periods in which exchange rates deviate from their PPP levels. If PPP provides information about future exchange rate movements, these durations should exhibit positive duration dependence. That is, the probability of returning to PPP levels should increase as the period of deviation increases. Parametric hazard functions estimated using data from eighteen countries provide no evidence of positive duration dependence. These results are robust to alternative definitions of PPP and to alternative functional specifications. While exchange rates take prolonged swings away from their PPP levels and then eventually return, these movements apparently constitute Monte Carlo cycles in which, at any point in time, the probability of moving back toward PPP is the same as the probability of moving farther away. Thus, PPP provides no useful information on future exchange rate changes, a result consistent with market efficiency.

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Nominal exchange rate regimes and the real exchange rate

Cited by 181 publications

References 12 publications

Estimation and testing of ARFIMA models in the real exchange rate

Estimation and testing of ARFIMA models in the real exchange rate

A Study on Chinese Real Exchange Rate

Can purchasing power parity help forecast the dollar?

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