explaining irrigation technology choices a microparameter approach water price reforms are increasingly being used to encourage improvements in irrigation efficiency through technology adoption a microparameter approach based on field level data is used to assess the effect of economic variables environmental characteristics and institutional variables on irrigation technology choices the results show that water price is not the most important factor governing irrigation technology adoption physical and agronomic characteristics appear to matter more the results demonstrate the importance of using micro level data to determine the effects of asset heterogeneity and crop type on technology adoption the continued growth of urban water demand acted a measure a b 3616 requiring irrigathe recent awareness of environmental and in tion districts in the state to draft best managestream water values and the virtual halt of wa merit practices for the use of irrigation water ter supply development have put increased de including farm level measures such as irrigamands on scarce water supplies in the western tion systems water price reforms are also inunited states recent legislation has called for creasingly used to encourage improvements in increased in stream water flows to enhance wa irrigation efficiency through technology adopter quality and restore wildlife habitat in a hum tion the federal central valley project imber of states especially california because ag provement act requires the u s bureau of recricultural water use accounts for the majority of lamation to adopt increasing block pricing for water consumption in the west growers are water provided to irrigation districts generally forced to bear the burden of reduced the literature on adoption of modern irrigadiversions necessary to enhance in stream tion technology is well established both empiri

temporal aggregation of an estar process some implications for purchasing power parity adjustment nonlinear models of deviations from ppp have recently provided an important theoretically well motivated contribution to the ppp puzzle most of these studies use temporally aggregated data to empirically estimate the nonlinear models as noted by taylor 2001 if the true dgp is nonlinear the temporally aggregated data could exhibit misleading properties regarding the adjustment speeds we examine the effects of different levels of temporal aggregation on estimates of estar models of real exchange rates our monte carlo results show that temporal aggregation does not imply the disappearance of nonlinearity and that adjustment speeds are significantly slower in temporally aggregated data than in the true dgp furthermore the autoregressive structure of some monthly estar estimates found in the literature is suggestive that adjustment speeds are even faster than implied by the monthly estimates

purchasing power parity modeling and testing mean reversion abstract a model of mean reversion of exchange rates to purchasing power parity is developed and tested where exchange rates are assumed to follow a mean reverting elastic random walk toward a stochastic ppp rate the model recognizes the possibility that mean reversion towards ppp may be nonlinear which allows greater flexibility in the adjustment process regression equations consistent with the theoretical model are derived the model is tested using long and short term data for six countries while the results are generally consistent with the findings of previous studies evidence is presented which demonstrates that the mean reversion process is not linear for some countries

are asian real exchange rates stationary by applying the newly developed nonlinear stationary test advanced by kapetanios et al journal of econometrics 112 2003 359 in examining the stationary property of 11 asian real exchange rates this paper rejects unit root in 8 us dollar based and 6 japanese yen based rates whereas the augmented dickey fuller adf test has led to no rejection at all

integrated assessment of water energy ghg emissions tradeoffs in an irrigated lucerne production system in eastern australia robust understanding of possible trade offs and synergies between climate change energy and water sector policies is critical to achieving economically viable and environmentally sound agricultural production systems in a low carbon water constrained economy in which greenhouse gas ghg emissions are penalized and water savings rewarded accurate assessment of the potential costs benefits of investment decisions can help to optimize the economic efficiency of agricultural production while minimizing environmental impacts this paper presents a novel integrated framework based on carbon and water accounting which enables analysis of potential trade offs between water savings energy consumption ghg emissions and economic costs benefits associated with the adoption of new water efficient irrigation technologies the framework was applied to an irrigated lucerne cropping system in eastern australia and compares the costs benefits of old roll line sprinkler irrigation systems against new pressurized systems positive synergies were found with the adoption of the new technology which saved both water and energy use reduced total ghg emissions and resulted in net economic returns across a range of carbon prices the results of this study provide support for an integrated evidence based approach to policy development and strategic decision making and for the prioritization of investments on both economic and environmental grounds

nonlinear adjustment to purchasing power parity in the post bretton woods era abstract this paper models the dynamics of adjustment to long run purchasing power parity ppp over the post bretton woods period in a nonlinear framework consistent with the presence of frictions in international trade we estimate exponential smooth transition autoregressive estar models of deviations from ppp which are obtained using the johansen cointegration method for both consumer price index cpi and wholesale price index wpi based measures and a broad set of us trading partners in several cases we find clear evidence of a mean reverting dynamic process for sizable deviations from ppp with the equilibrium tendency varying nonlinearly with the magnitude of disequilibrium analysis of impulse response functions also supports a nonlinear dynamic structure but convergence to long run ppp in the post bretton woods era is very slow

purchasing power parity and unit root tests using panel data abstract this paper reports the results of unit root tests for real exchange rates using a panel framework this panel approach provides greatly improved power compared to conventional univariate time series unit root tests we obtain evidence supporting ppp over the recent flexible exchange rate period for g 6 and oecd countries we show explicitly that failure to find such evidence in previous research was due to the low power of the tests

considering the energy water and food nexus towards an integrated modelling approach the areas of energy water and food policy have numerous interwoven concerns ranging from ensuring access to services to environmental impacts to price volatility these issues manifest in very di

are real exchange rates nonstationary evidence from a panel data test it is well documented that real exchange rates between the united states and many industrialized countries in the post bretton woods period are integrated this result implies that purchasing power parity ppp does not hold even as a long run relationship this paper demonstrates that the failure to reject the unit root hypothesis may result from the low power of existing univariate test procedures i test for unit roots in real exchange rates by employing a more powerful panel based procedure using both cpi and wpi real dollar exchange rate data i strongly reject the null hypothesis of a unit root my results provide overwhelming support for the long run ppp under the current float copyright 1996 by ohio state university press

purchasing power parity over two centuries trends and nonlinearity in two recent contributions lothian and taylor and cuddington and liang produced empirical evidence that annual data for the dollar sterling real exchange rate spanning two centuries exhibited a non linear deterministic trend this trend could be proxying harrod balassa samuelson effects lothian and taylor showed that a linear stationary autoregressive mode which embodied a cubic trend implied much faster mean reversion of the real exchange rate to shocks than a model that excluded the trend this article shows that both non linearity and a deterministic trend can be allowed for in a theoretically appealing manner and that the fitted models provide a parsimonious explanation of both the dollar sterling and franc sterling real exchange rates over the two centuries of data generalized impulse response function analysis of the models demonstrates that the speed of adjustment to shocks can be even faster when trends are considered

short memory and the ppp hypothesis abstract the purchasing power parity ppp puzzle has been framed in recent years in terms of half lives of real exchange rate shocks that exceed 3 years recent studies have attempted to solve that puzzle by adopting nonlinear stochastic models of real exchange rates the notion of half life is fundamentally linear and therefore is inappropriate for those nonlinear models we provide operational algorithms for estimating more general measures of persistence that are appropriate for nonlinear as well as linear models memory in mean and memory in distribution we study three parametric models autoregression threshold autoregression and exponential smooth threshold autoregression our monte carlo simulations suggest that all three models can produce biased estimates of persistence measures depending on the true data generating process in addition the sample size is found to be too small for reliable nonparametric estimation suggesting that we need to impose parametric structure in the empirical application all three parametric models provided general support for the long term ppp hypothesis suggesting that there is no puzzle and questioning the need for recently introduced nonlinear models

purchasing power parity as a long run relation dickey fuller and stock watson tests of purchasing power parity ppp as a long run proposition are provided within the cointegration framework proposed by granger since different countries use different weights to construct price indices the traditional constraint that the coefficients on the price indices should be unity in the log linear ppp relation is relaxed the absence of a general ppp relation cannot be rejected at most a ppp relation is indicated in five out of fifteen country pairs that are examined even if a long run ppp relation exists it is not found to be useful in predicting future nominal exchange rates which is consistent with efficient speculative markets

was it real the exchange rate interest differential relation over the modern floating rate period in this paper we explore the relationship between real exchange rates and real interest rate differentials in the united states germany japan and the united kingdom contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant we find little evidence of a stable relationship between real interest rates and real exchange rates we consider both in sample and out of sample tests one hypothesis that is consistent with our findings is that real disturbances such as productivity shocks may be a major source of exchange rate volatility this paper investigates the empirical relationship between major currency real exchange rates and real interest rates over the modern post march 1973 flexible rate experience the exchange rates examined here include the dollar mark dollar yen and dollar pound rates our two major findings are as follows first the data do not indicate a strong correspondence between real interest rate differentials short term or long term and real exchange rates this finding appears to conflict with the predictions of most monetary and portfolio balance models of exchange rate determination though the conflict can be substantially reconciled if aggregate disturbances are primarily real in nature i e changes in productivity tastes etc it is true that in many cases the sign of the estimated exchange rate interest rate differential relationship is consistent with the possible predominance of financial market disturbances but the relationship is not stable enough to be statistically significant second although one does find some evidence of a unit root in both real exchange rates and long term but not shortterm real interest differentials these two series do not appear to be linearly cointegrated hence the nonstationarity or near nonstationarity in the two series cannot be attributed to the same factor in section i we briefly describe a class of small scale monetary models of exchange rate determination the importance of this class of models for empirical work derives from its strong predictions about how the exchange rate will move

testing the purchasing power parity through i 2 cointegration techniques this paper contributes to the empirical literature on the purchasing power parity ppp over the post bretton woods period by providing a time series based interpretation of the controversial evidence characterizing the dynamics of real exchange rates it is shown that the persistence of deviations from the ppp between a set of european countries and the united states may be empirically attributed to the presence of i 2 stochastic trends in prices using consumer price indices interestingly the slow adjustment towards the equilibrium can be modelled through integral proportional equilibrium correction models and this evidence can be partly reconciled with theories where the inflation rate reduces the markup of profit maximizing firms acting on imperfectly competitive markets copyright 2005 john wiley sons ltd

nonlinearities in real exchange rate determination do african exchange rates follow a random walk in this article we aim at modelling the long run behaviour of the real effective exchange rates reer for a pool of african countries not much attention has been paid to this group of countries in particular to the existence of nonlinearities in the long run path of such a variable controlling for two sources of nonlinearities i e asymmetric adjustment to equilibrium and nonlinear deterministic trends allows us to gain some insight about the behaviour of the african reer we find that these sources of nonlinearities help us to explain the apparent unit root behaviour found applying linear unit root tests for most of the countries

arbitrage behaviour in the exchange rates of taiwan and japan applying the smooth transition vector error correction model with gjr garch and spillover volatility this study utilizes a smooth transition vector error correction model stvecm with glosten jagannathan runkle generalized autoregressive conditional heteroscedasticity gjr garch and spillover volatility to investigate the changes in short run return dynamics when a deviation from the comovement equilibrium between the prices of new taiwan dollar ntd and japan yen jpy exists empirical results demonstrated that both exchange rates have a nonlinear relationship with the comovement equilibrium which was captured by the logistic smooth transition vector error correction model with gjr garch and spillover volatility lstvecm gjr garch sv both exchange rates will quickly reverse to equilibrium when there are large deviations between the two exchange rates implying that information traders obtain profit in two markets and then both exchange rates continue to deviate from equilibrium when small deviations exist from comovement owing to noise trader to expand mispricing moreover small and large devi

increasing evidence of purchasing power parity over the current float we conduct unit root tests of real exchange rates with the united states dollar and the german mark as base currencies using samples of data which begin in 1973 and end between 1982 and 1996 we find that as the sample is extended the evidence of ppp strengthens with panel but not univariate methods because of the sharp rise and fall of the dollar in the early 1980s rejections of the unit root null do not monotonically increase with the sample size the evidence of ppp is uniformly stronger when the mark is used as the base currency

economic reforms and human development evidence from transition economies do market oriented economic reforms result in higher levels of human well being this article studies the impact of macro level institutional and infrastructure reforms on the economic educational and health dimensions of human well being among 25 transition economies we use panel data econometrics based on the lsdvc technique to analyse the effects of market oriented reforms on the human development index hdi as a measure of human well being from 1992 to 2007 the results show the complexity of reform impacts in transition countries they show that institutional and economic reforms led to positive economic effect and significant impacts on other dimensions of human development we find some positive economic impacts from infrastructure sectors reforms however not every reform measure appears to generate positive impacts large scale privatizations show negative effects in health and economic outcomes the overall results show the importance of the interaction among different reform measures and the combined effect of these on human development

a new cramer von misses cointegration test with application to environmental kuznets curve abstractthis article introduces a new cramer von misses cvm cointegration test robust to nonlinearities we characterize nonlinear cointegration in terms of a nonlinear moving average filter high pass filter of a matrix based on permutation matrices on the discrepancy of empirical distributions a cramer von misses cvm test statistic is proposed for testing the null hypothesis of two independent random walks against a broad range of cointegrating alternatives with monotonic nonlinearities and level shifts in the cointegration relationship we derive the asymptotic distribution of this induced order cramer von misses cvm cointegration test this new non parametric test statistic has two important properties the invariance to monotonic transformations of the series and the robustness for the presence of several parameter shifts or structural changes we analyse the small sample properties of this test by monte carlo simulations and evaluate the power of the test finally this cvm test is applied t

some new stylized facts of floating exchange rates abstract this paper re examines real exchange rate behavior of oecd currencies under the current float using the more extensive dataset that an additional decade s worth of experience has made available what emerges is a new set of stylized facts which suggest that the problems of the current float were not as commonly believed generic to that system but in fact rather specific being largely confined to one sub period the early and mid 1980s and one currency the us dollar this dollar behavior ranks as one of the important puzzles of the past 25 years

real exchange rates under the gold standard purchasing power parity is one of the most important equilibrium conditions in international macroeconomics empirically it is also one of the most hotly contested numerous recent studies for example have sought to determine the validity of purchasing power parity using data from the post bretton woods float and have reached different conclusions we assert that most such studies are flawed for two reasons first the post 1973 data contain by definition only a very limited amount of the low frequency information relevant for examination of long run parity second the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low frequency dynamics both deficiencies are rectified in the present paper with dramatic results we construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period and we study deviations from parity using long memory models that allow for subtle forms of mean

multi country evidence on the behavior of purchasing power parity under the current float abstract using panel data for the united states and 22 other oecd countries for the current float this paper presents evidence that despite substantial short term perturbations purchasing power parity actually performed much better than commonly believed average rates of growth of real exchange rates over long horizons bear little relationship either to average rates of growth of nominal exchange rates or to average inflation differentials thus implying a close to one to one relation between average rates of growth of nominal exchange rates and average inflation differentials panel data variants of standard unit root tests suggest that the real exchange rates of these countries can be characterized as mean reverting

causes of nonlinearities in low order models of the real exchange rate abstract this paper investigates the extent to which modern dsge models which feature local currency pricing home bias nontraded goods and incomplete markets can generate nonlinear real exchange rate dynamics that are consistent with those found in the time series literature using data from the current floating period our key findings are as follows first if the true model can be appropriately characterized as a set of linear equations then linearity tests that utilize univariate autoregressions of the real exchange rate suffer from an omitted variables problem which leads them to overestimate the true incidence of nonlinearity consequently studies that fail to control for this problem may spuriously find evidence of nonlinearities in the data despite the fact that the data generating process may be linear second we propose a strategy that can largely eliminate this distortion finally we find that dsge models solved using higher order approximations are capable of generating true structural nonlinearities in real exchange rates both asymptotically and in short samples

deviations from purchasing power parity under different exchange rate regimes do they revert and if so how abstract we propose an empirical model for deviations from long run purchasing power parity ppp that simultaneously accounts for three key features i adjustment toward ppp may occur via nominal exchange rates and relative prices at different speeds ii different exchange rate regimes may generate regime shifts in the structural dynamics of ppp deviations iii nonlinear reversion toward ppp in response to shocks this empirical framework encompasses and synthesizes much previous empirical research using over a century of data for the g5 countries we provide evidence that long run ppp holds the relative importance of nominal exchange rates and prices in restoring ppp varies over time and across different exchange rate regimes and reversion to ppp occurs nonlinearly at a speed that is fairly consistent with the nominal rigidities suggested by conventional open economy models

a nonparametric measure of convergence towards purchasing power parity it has been claimed that the deviations from purchasing power parity are highly persistent and have quite long half lives under the assumption of a linear adjustment of real exchange rates however inspired by trade cost models nonlinear adjustment has been widely employed in recent empirical studies this paper proposes a simple nonparametric procedure for evaluating the speed of adjustment in the presence of nonlinearity using the largest lyapunov exponent of the time series the empirical result suggests that the speed of convergence to a long run price level is indeed faster than what was found in previous studies with linear restrictions copyright 2006 john wiley sons ltd

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

market frictions and real exchange rates abstract one explanation for the failure of purchasing power parity ppp is that market frictions impede trade allowing departures from ppp to grow quite large without precipitating goods arbitrage if this explanation is correct then other things equal large deviations from ppp should be less persistent than small differences this paper examines this prediction over the modern floating rate era the outcome is surprising between most countries large deviations from ppp appear to be at least as persistent as small deviations and perhaps even more so the exceptions are for some intra ec real exchange rates the implication is that market frictions alone do not explain the chimerical nature of ppp

measuring the persistence of deviations from purchasing power parity with a fractionally integrated star model 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

long run purchasing power parity during the recent float abstract this paper examines the relevance of long run purchasing power parity ppp which allows for measurement errors during the recent floating exchange rate period previous empirical studies generally fail to find support for long run ppp over this period in this paper in this paper the cointegration property of exchange rates and prices is examined using maximum likelihood procedure and we find significant evidence favorable to long run ppp further tests for symmetry and proportionality indicate that these two conditions are not generally with the data the results support the hypothesis of long run ppp with measurement errors in prices

nominal exchange rate regimes and the real exchange rate abstract two assumptions about the real exchange rate are common in the literature on international finance 1 the real exchange rate is a random walk 2 the time series properties of the real exchange rate depend on the nominal exchange rate regime this paper presents evidence that indicates that the random walk behavior of the real exchange rate is only a characteristic of the post world war ii period moreover our findings also suggest that what is crucial to the real exchange rate behavior is the particular historical period rather than the nominal exchange rate arrangement

smooth transition models and arbitrage consistency slow adjustment of real exchange rate towards equilibrium in linear models has long puzzled researchers stimulating the adoption of nonlinear models the exponential smooth transition model has been particularly successful providing faster adjustment speeds this paper discusses some of its theoretical limitations for example that expectations are adaptive we propose a new nonlinear model conceptually superior to the estar model since it is consistent with rational expectations one of its advantages is that it can be solved and estimated by nonlinear least squares using monthly post 1973 real exchange rate data we show that the model implies even faster speeds of adjustment

u s dollar real exchange rates nonlinearity revisited abstract previous empirical work employing smooth transition autoregressive star models has found that u s dollar real exchange rates are nonlinear mean reverting processes we utilise tests developed from time varying smooth transition autoregressive tv star models to re examine dollar based rates these tests reveal that structural change is an important feature of the data in some cases there is support for both nonlinearity and structural change while in other cases there appears to be stronger support for structural change than for nonlinearity the results raise a number of interesting issues for future research

searching for nonlinearities in real exchange rates a recent innovation in modeling exchange rates has been the use of nonlinear techniques such as threshold autoregressive models and its smooth transition variants this paper investigates the smooth transition autoregressive star modeling strategy in an application to real exchange rates the key findings are as follows first using the methodology advocated by terasvirta 1994 we find evidence of nonlinear dynamics for several of the spot dollar real exchange rates using monthly data on five of the g7 countries however once estimated we find that the star specification is appropriate for only one of the three exchange rate series indicated to be an estar process moreover using simulations we show that the underlying methodology used to detect nonlinearities in the data exhibit substantial size biases which we attribute to influential observations we also investigate an alternative nonlinear specification and find that we can model the dollar sterling and the dollar lira real exchange rates better as an open loop tar process instead of a setar process

nonlinear mean reversion in real exchange rates abstract this paper modifies a unit root test procedure in the nonlinear star framework recently advanced by kapetanios et al journal of econometrics 2001 in press using a detrending methodology suggested by schmidt and phillips oxford bulletin of economics and statistics 54 1992 257 we derive an alternative unit root test and apply it to the bilateral real exchange rates for the g7 countries we find that the use of our test is able to uncover evidence of nonlinear mean reversion for most cases whereas the standard dickey fuller test based on the linear model cannot

dynamic hedge ratio for stock index futures application of threshold vecm this study represents one of the first papers in stock index futures arbitrage literature to investigate the effects of arbitrage threshold on stock index futures hedging effectiveness by using threshold vector error correction model hereafter threshold vecm moreover in contrast to prior studies focusing on examining case studies involving mature stock markets this study not only adopts us s p 500 stock market as the sample but also adds an analysis of one emerging stock market hungarian bsi and examines the differences between them finally this investigation employs a rolling estimation process to examine the impact of arbitrage threshold behaviours on the setting of futures hedging ratio the empirical findings of this study are consistent with the following notions first arbitrage behaviour reduces co movement between futures and spot markets and increases the volatility of both futures and spot markets second this article denotes the outer regime of futures spot market for the case of hung

cointegration and tests of purchasing power parity nonstationarity in the levels of spot exchange rates and domestic and foreign price indices makes the use of conventional tests of the absolute version of purchasing power parity ppp inappropriate if ppp is true inter country commodity arbitrage ensures that deviations from a linear combination of spot exchange rates and domestic and foreign price levels should be stationary under these conditions exchange rates and price levels should form a cointegrated system we find the null hypothesis of no cointegration cannot be rejected for all five countries thus violating the long run absolute version of ppp

a general equilibrium model of international portfolio choice we investigate in a two country general equilibrium model whether a bias in consumption towards domestic goods will necessarily lead to a preference for domestic securities we develop a model where investors are constrained to consume only from their domestic capital stock and where it is costly to transfer capital across countries in this model investors less risk averse than an investor with log utility bias their portfolios towards domestic assets investors more risk averse than log however prefer foreign assets thus this model suggests that it is unlikely that the portfolios observed empirically can be explained by the high proportion of domestic goods in total consumption we investigate in a two country general equilbrium model whether a bias in consumption toward domestic goods will necessarily lead to a preference for domestic assets in an investor s optimal portfolio we constrain investors to consume only from their domestic capital stock and introduce a proportional cost for transferring goods from one country this cost gives rise to endogenous deviations from the law of one price lop thus the home and foreign investors do not hold identical portfolios we show that an investor s optimal portfolio is biased towards domestic equity only if she is less risk averse than an investor with log utility investors with relative risk aversion greater than one exhibit a preference for the foreign asset this is because the exchange rate derived endogenously is negatively correlated with the return on the foreign asset and therefore the translated return on the foreign stock is less risky than that on the domestic stock thus the results of this model suggest that it is unlikely that the preference for domestic assets that is observed empirically can be explained by the high proportion of domestic goods in total consumption there exists a considerable body of literature documenting the gains from international diversification grubel 1968 was the first to propose that international diversification allows investors to attain lower return variances than those achievable by diversifying domestically this proposition relies on the correlation between stock indices across countries being significantly less

transactions costs and nonlinear adjustment in real exchange rates an empirical investigation eolquilibrium models of real exchange rate determination in the presence of transactions costs imply a nonlinear adjustment process toward purchasing power parity ppp conventional cointegration tests which ignore the effect of transactions costs may be biased against the long run ppp hypothesis our results using both monthly data for the interwar period and annual data spanning two centuries clearly reject the linear framework in favor of an exponential smooth transition autoregressive process the systematic pattern in the estimates of the nonlinear models provides strong evidence of mean reverting behavior for ppp deviations and helps explain the mixed results of previous studies

testing purchasing power parity under the null hypothesis of co integration this paper analyzes monthly data on the exchange rates and price indices of the eleven major industrial countries over the modern period of floating exchange rates it presents tests that are based upon the null hypothesis of cointegration the paper finds evidence that most country pairs not involving north american currencies have exchange rates and price indices that are cointegrated it estimates the error correction representation for the series that are cointegrated and it shows that the dynamic adjustment of the relationship between exchange rates and prices is accomplished almost entirely in the market for foreign exchange copyright 1991 by royal economic society

a long run view of the european monetary system abstract this papaer analyzes the exchange rates and consumer price indices of six countries participating in the european monetary system ems during the entire period of floating exchange rates the analysis shows that most of these real exchange rates have unit roots even when one allows for the possibility of a structural break at the time of the advent of the ems further proces and exchange rates are not co integrated during the ems period the data suggest that the 12 realignments of the ems have not served fully too offset the member countries inflation differentials

uncertainty and export performance evidence from 18 countries we study a sample of nine developed and nine developing countries to evaluate the questions of how foreign income uncertainty and real exchange rate rer uncertainty impact international trade and how those impacts vary according to stage of development rer uncertainty has a negative and significant impact on export growth for six of the nine less developed countries in our sample while it has an insignificant effect for a majority of the developed countries in both groups foreign income uncertainty has a more pervasively significant and frequently larger influence on trade than does rer uncertainty

searching for stationarity purchasing power parity under the current float abstract using panel data methods we investigate long run purchasing power parity by testing for unit roots in real exchange rates of industrial countries under the current float the evidence against the unit root hypothesis is stronger for larger than for smaller panels for monthly than for quarterly data and when the german mark rather than the united states dollar is used as the base currency while we find that accounting for serial correlation considerably weakens the evidence against the unit root null the results as a whole are consistent with long run purchasing power parity

how well does nonlinear mean reversion solve the ppp puzzle abstract this paper addresses the degree to which models which exhibit nonlinear mean reversion nmr present a resolution to the purchasing power parity puzzle this paper develops a method of estimating a representative distribution of half lives which is based upon the observed distribution of shocks in a given time series rather than choosing shock sizes arbitrarily which is the current practice in the literature this approach is implemented with data on five real exchange rates the empirical analysis shows that half lives shorter than the consensus are observed frequently enough to support the proposition that nmr is a solution to the ppp puzzle

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

testing symmetry and proportionality in ppp a panel data approach purchasing power parity ppp is a proposition equating the nominal exchange rate to the ratio of the domestic to foreign price levels this article employs bayesian panel data methods to test for ppp in particular the implied symmetry and proportionality conditions using a dataset of all the organization for economic cooperation and development member countries in the post bretton woods era i do not find support for symmetry and proportionality in ppp over time and across countries

testing long run purchasing power parity under exchange rate targeting abstract the present paper exploits the idea that empirical estimates of the long run ppp relationship may compound two distinct influences coming from the behavior of market participants and policy makers when the latter are targeting the exchange rate this tends to bias tests of long run ppp against its acceptance the validity of the theoretical arguments is assessed by drawing on the experience of two european union countries greece and france for the post bretton woods period estimation biases due to the omission of policy effects are found to be significant only in the case of greece for france our test results provide evidence bearing on the effectiveness of the competitive disinflation strategy pursued by the french authorities

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null