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| Author: | Cashin, P. McDermott, C.J. |
| Title: | An unbiased appraisal of purchasing power parity |
| Journal: | IMF Staff papers
2003 : VOL. 50:3, p. 321-351 |
| Index terms: | Appraisal Country comparisons Exchange rates Purchasing power parity |
| Language: | eng |
| Abstract: | Univariate studies of the hypothesis of unit roots in real exchange rates have yielded consensus point estimates of the half-life of deviations from purchasing power parity (PPP) of between three to five years (Rogoff, 1996). However, conventional least-squares-based estimates of half-lives are biased downward. Accordingly, as a preferred measure of the persistence of real exchange rate shocks median-unbiased estimators of the half-life of deviations from parity, which correct for the downward bias of conventional estimators, is used in this study. This issue is investigated using real effective exchange rate (REER) data for 20 industrial countries in the post-Bretton Woods period. |
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