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Real exchange rate dynamics in the Asian economies: can regime shifts explain purchasing power parity puzzles?


Citation

Siew, Voon Soon and Baharumshah, Ahmad Zubaidi and Sung, K. Ahn (2015) Real exchange rate dynamics in the Asian economies: can regime shifts explain purchasing power parity puzzles? Global Economic Review: Perspectives on East Asian Economies and Industries, 44 (2). pp. 219-236. ISSN 1226-508X; ESSN: 1744-3873

Abstract

We show that the strong version of the purchasing power parity (PPP) hypothesis holds in most of the US dollar real exchange rates using cointegration method that accounts for breaks in the models. The break dates in seven of the Asian currencies coincide with the two rounds of currency depreciation recorded during the 1997–1998 financial crises. We obtain a mean half-life estimate of about 10 months for PPP to converge to its long-run equilibrium level. Our confidence intervals based on persistence profile approach for the half-lives is much narrower than previous evidence might indicate. Taken together, these results show that mean reversion is stronger than commonly thought.


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Additional Metadata

Item Type: Article
Divisions: Faculty of Economics and Management
DOI Number: https://doi.org/10.1080/1226508X.2015.1012729
Publisher: Routledge
Keywords: Real exchange rates; Asian economies; Structural breaks; Half-life
Depositing User: Ms. Nida Hidayati Ghazali
Date Deposited: 07 May 2018 05:02
Last Modified: 07 May 2018 05:02
Altmetrics: http://www.altmetric.com/details.php?domain=psasir.upm.edu.my&doi=10.1080/1226508X.2015.1012729
URI: http://psasir.upm.edu.my/id/eprint/46088
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