Long memory and nonlinear mean reversion in Japanese yen-based real exchange rates

Article Abstract:

The extraordinary difficulty in uncovering parity reversion in yen-based real exchange rates has often been ascribed to a missing trend variable. This study identifies an alternative explanation and shows that the puzzling behavior of real yen rates may stem from long-memory dynamics, which undermine unit-root tests in their ability to detect mean reversion. The long-memory findings are consistent with the long swings in yen exchange rates during the current float. Further analysis also reveals evidence of non-monotonic reversion toward parity. [C] 2001 Elsevier Science Ltd. All rights reserved. JEL classification: F31; F41 Keywords: Purchasing power parity; Long-memory dynamics; Long swings; Amplified shock response; Non-monotonic mean reversion

United States, Economic research

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Purchasing power parity under the European Monetary System

Article Abstract:

Exchange rate realignments under the European Monetary System (EMS) have been successful in maintaining purchasing power parity (PPP) among member countries. This was indicated by the results of a study which sought to investigate the effectivity of such realignments in maintaining competitiveness of EMS members. The findings contradict those of previous research which reject the empirical relevance of the PPP hypothesis.

Evaluation, Prices and rates, Economic policy, Foreign exchange rates, European Monetary System

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Parity reversion in real exchange rates during the post-Bretton Woods period

Article Abstract:

The statistical test being utilized determines the parity reversion in a series of real exchange rates such that when an effective unit-root evaluation is used, parity reversion can be revealed above modern floats. Traditional notion has it that the post-Bretton Woods period is not long enough to manifest in a separate sequence of real exchange rates some substantial parity reversion. To reveal parity reversion, two effective unit-root evaluations need to be applied. Furthermore, relatively small sample sizes are needed to obtain statistical significance.

Exchange Rates, Models, Economic aspects

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