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Measuring the persistence of deviations from purchasing power parity with a fractionally integrated STAR model

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  • Smallwood, Aaron D.

Abstract

Empirically, elements of both fractional long memory and threshold non-linearity are present in the real exchange rates of the G-7 countries against the US, notably in the EU countries. Estimated half lives of deviations from PPP using median unbiased corrections to conventional linear autoregressive models corroborate existing evidence related to the PPP paradox as half lives range from at least four years to an infinite number of years. In contrast, for each EU country, accounting for threshold non-linearity results in estimated half lives that can be less than three years even with the allowance for fractional long memory.

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  • Smallwood, Aaron D., 2008. "Measuring the persistence of deviations from purchasing power parity with a fractionally integrated STAR model," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1161-1176, November.
    • Handle: RePEc:eee:jimfin:v:27:y:2008:i:7:p:1161-1176
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    Cited by:

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    2. Ho, Catherine S.F. & Ariff, M., 2012. "Time to equilibrium in exchange rates: G-10 and Eastern European economies," Global Finance Journal, Elsevier, vol. 23(2), pages 94-107.
    3. Daniel Buncic, 2019. "Identification and Estimation Issues in Exponential Smooth Transition Autoregressive Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(3), pages 667-685, June.
    4. Onsurang Norrbin & Aaron D. Smallwood, 2011. "Mean Reversion in the Real Interest Rate and the Effects of Calculating Expected Inflation," Southern Economic Journal, John Wiley & Sons, vol. 78(1), pages 107-130, July.
    5. Catherine Ho & M. Ariff, 2011. "Sticky prices and time to equilibrium: evidence from Asia-Pacific trade-related economies," Applied Economics, Taylor & Francis Journals, vol. 43(21), pages 2851-2861.
    6. Aguirre, Alvaro, 2019. "Rebellions, Technical Change, and the Early Development of Political Institutions in Latin America," Journal of Comparative Economics, Elsevier, vol. 47(1), pages 65-89.
    7. Ma, Wei & Li, Haiqi & Park, Sung Y., 2017. "Empirical conditional quantile test for purchasing power parity: Evidence from East Asian countries," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 211-222.

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