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Official Exchange Rate Arrangements and Real Exchange Rate Behavior

Author

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  • Parsley, David C
  • Popper, Helen A

Abstract

We study the behavior of real exchange rates under various official designations of exchange rate arrangements. Examining many currencies, we find important differences across the designations. Most notably, real exchange rate mean reversion is fastest when nominal exchange rates are officially pegged. We also find a large nonlinear effect: adjustment is fastest when the real exchange rate deviates greatly from its mean. This nonlinear effect is also most striking among officially pegged currencies. Finally, we find that nominal exchange rates, rather than prices, do most of the adjusting.

Suggested Citation

  • Parsley, David C & Popper, Helen A, 2001. "Official Exchange Rate Arrangements and Real Exchange Rate Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 976-993, November.
    • Handle: RePEc:mcb:jmoncb:v:33:y:2001:i:4:p:976-93
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    Citations

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    Cited by:

    1. Jo‐wei Wu & Jyh‐Lin Wu, 2018. "Does The Launch Of The Euro Hinder The Current Account Adjustment Of The Eurozone?," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1116-1135, April.
    2. Bergin, Paul R. & Glick, Reuven & Wu, Jyh-Lin, 2014. "Mussa redux and conditional PPP," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 101-114.
    3. Bergin, Paul R. & Glick, Reuven & Wu, Jyh-Lin, 2017. "“Conditional PPP” and real exchange rate convergence in the euro area," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 78-92.
    4. Michael Fidora & Claire Giordano & Martin Schmitz, 2021. "Real Exchange Rate Misalignments in the Euro Area," Open Economies Review, Springer, vol. 32(1), pages 71-107, February.
    5. Walter Enders & Selahattin Dibooglu, 2001. "Long‐Run Purchasing Power Parity with Asymmetric Adjustment," Southern Economic Journal, John Wiley & Sons, vol. 68(2), pages 433-445, October.
    6. Christoph Fischer, 2006. "PPP: a disaggregated view," Applied Financial Economics, Taylor & Francis Journals, vol. 16(1-2), pages 93-108.
    7. Astorga, Pablo, 2012. "Mean reversion in long-horizon real exchange rates: Evidence from Latin America," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1529-1550.
    8. Mohsen Bahmani-Oskooee & Ali Kutan & Su Zhou, 2009. "Towards solving the PPP puzzle: evidence from 113 countries," Applied Economics, Taylor & Francis Journals, vol. 41(24), pages 3057-3066.
    9. Alan M. Taylor, 2002. "A Century Of Purchasing-Power Parity," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 139-150, February.
    10. David Parsley Helen Popper, 2002. "Exchange Rate Pegs and Foreign Exchange Exposure in East Asia," International Finance 0211001, University Library of Munich, Germany.
    11. Hiroyuki Taguchi & Harutaka Murofushi & Hironao Tsuboue, 2009. "Exchange rate regime and real exchange rate behavior," Economics Bulletin, AccessEcon, vol. 29(4), pages 2924-2936.
    12. Mohsen Bahmani-Oskooee & Abera Gelan, 2006. "Testing the PPP in the non-linear STAR Framework: Evidence from Africa," Economics Bulletin, AccessEcon, vol. 6(17), pages 1-15.
    13. Tsong Ching-Chuan, 2012. "Unit Root Testing with Stationary Covariates in the Framework of Asymmetric STAR Nonlinearity," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(5), pages 1-27, December.
    14. Huang, Chao-Hsi & Yang, Chih-Yuan, 2015. "European exchange rate regimes and purchasing power parity: An empirical study on eleven eurozone countries," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 100-109.
    15. Parsley, David C. & Popper, Helen A., 2006. "Exchange rate pegs and foreign exchange exposure in East and South East Asia," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 992-1009, October.
    16. David Parsley & Helen Popper, 2002. "Foreign Exchange Exposure and Exchange Rate Arrangements in East Asia," Working Papers 172002, Hong Kong Institute for Monetary Research.
    17. Walter Enders & Kamol Chumrusphonlert, 2004. "Threshold cointegration and purchasing power parity in the pacific nations," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 889-896.
    18. Aviral Tiwari & Muhammad Shahbaz, 2014. "Revisiting Purchasing Power Parity for India using threshold cointegration and nonlinear unit root test," Economic Change and Restructuring, Springer, vol. 47(2), pages 117-133, May.
    19. repec:ebl:ecbull:v:6:y:2006:i:17:p:1-15 is not listed on IDEAS
    20. Mark J.Holmes, 2002. "Are there non linearities in US: Latin American real exchange behavior," Estudios de Economia, University of Chile, Department of Economics, vol. 29(2 Year 20), pages 177-190, December.
    21. Tsong Ching-Chuan, 2012. "Unit Root Testing with Stationary Covariates in the Framework of Asymmetric STAR Nonlinearity," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(5), pages 1-27, December.
    22. Yougbaré, Lassana, 2011. "Exchange rate arrangements and misalignments: contrasting words and deeds," MPRA Paper 32362, University Library of Munich, Germany.
    23. Mohsen Bahmani-Oskooee & Omid Ranjbar, 2016. "Quantile unit root test and PPP: evidence from 23 OECD countries," Applied Economics, Taylor & Francis Journals, vol. 48(31), pages 2899-2911, July.
    24. Choi, Chi-Young, 2004. "Searching for evidence of long-run PPP from a post-Bretton Woods panel: separating the wheat from the chaff," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1159-1186.

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