Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions
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Summary:
We examine the mean-reverting properties of real exchange rates, by comparing the unit root properties of a group of international real exchange rates with two groups of intra-national real exchange rates. Strikingly, we find that while the international real rates taken as a group appear mean-reverting, the intra-national rates are not. This is consistent with the view that while monetary shocks may be mean-reverting over the medium term, underlying real factors do generate long-term trends in real exchange rates.
Series:
Working Paper No. 1998/069
Subject:
Economic integration Exchange rate analysis Exchange rates Foreign exchange Monetary unions Purchasing power parity Real exchange rates
Notes:
Also published in Staff Papers, Vol. 46, No. 1, March 1999.
English
Publication Date:
May 1, 1998
ISBN/ISSN:
9781451960846/1018-5941
Stock No:
WPIEA0691998
Pages:
17
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