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The real exchange rate, regime changes and volatility shifts

Author

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  • D. Ventosa-Santaul a
  • M. G -Zald
  • F. H. Wallace

Abstract

We make use of a data-set with both long span and high frequency to test for purchasing power parity (PPP) while allowing for a structural shift in the volatility of the Mexico-US bilateral real exchange rate (RER). The Kim, Leybourne and Newbold (2002) unit root test, robust to changes in the innovation variance, indicates mean stationarity of the monthly RER, and hence evidence of PPP, for the full sample, 1930-2012, and various subsamples. The persistence of deviations of the real rate from its PPP level as measured by half-lives ranges from 1.37 to 2.41 years.

Suggested Citation

  • D. Ventosa-Santaul a & M. G -Zald & F. H. Wallace, 2015. "The real exchange rate, regime changes and volatility shifts," Applied Economics, Taylor & Francis Journals, vol. 47(24), pages 2445-2454, May.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:24:p:2445-2454
    DOI: 10.1080/00036846.2015.1005821
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    Cited by:

    1. Frederick H. Wallace, 2017. "Purchasing power parity in Mexico since 1933," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 26(1), pages 1-18, December.
    2. de Jesús Fonseca, Felipe & Gómez-Zaldívar, Manuel & Ventosa-Santaulària, Daniel, 2020. "Public investment and economic activity in Mexico, 1925-1981," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-24.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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