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Semi-parametric real exchange rates dynamics

Author

Listed:
  • Angelos Kanas

    (University of Piraeus)

  • Angelos Kotios

    (University of Piraeus)

  • Panagiotis D. Zervopoulos

    (University of Sharjah)

Abstract

A flexible semi-parametric augmented Dickey Fuller (ADF) regression is proposed to explore real exchange rate dynamics for 16 countries over the twentieth century, and to estimate half-lives. Departing from existing literature, the present approach does not impose a functional form of the ADF regression and encompasses parametric extensions. Significant impediments to real exchange rates adjustment are found, and estimated half-lives are longer than those reported by earlier studies. These findings reveal a dismal PPP performance, difficulties in designing profitable strategies based on mean-reversion, complexities in production relocation policies by firms to reduce exchange rate risk, and carry implications for foreign subsidiary ownership structure.

Suggested Citation

  • Angelos Kanas & Angelos Kotios & Panagiotis D. Zervopoulos, 2019. "Semi-parametric real exchange rates dynamics," Review of Quantitative Finance and Accounting, Springer, vol. 52(2), pages 643-656, February.
    • Handle: RePEc:kap:rqfnac:v:52:y:2019:i:2:d:10.1007_s11156-018-0720-y
    DOI: 10.1007/s11156-018-0720-y
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    More about this item

    Keywords

    Real exchange rates; Semi-parametric; Half-lives; Simulations;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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