mean reversion in closed end fund discount evidence from half life this article examines the mean reversion properties of the discount on uk and us closed end funds while the discounts are tested i 1 strong statistical evidence of mean reversion is ascertained by bias corrected bootstrap half life estimates the estimates also indicate that equity based funds converge to the steady state level faster than fixed income funds in addition although an equilibrium pricing condition postulates an inverse relation between half life and the discount size correlation estimates fail to show strong support for the relation

national price levels purchasing power parity and cointegration a test of four high inflation economies abstract the time series properties of exchange rates and wholesale prices from four high inflation countries show some evidence in support of purchasing power parity tests for stationarity of real exchange rates and cointegration among price and exchange rate variables are presented for argentina brazil chile and israel during the 1970s and 1980s error correction models describe the mechanism of adjustment to long run equilibrium

the measurement and sources of technological change biases with an application to postwar japanese agriculture technological change bias in agriculture has important effects on and is affected by other changes in an economy labour saving technological change for example enables more farm labour to migrate to the non farm sector kako 1978 a land using bias on the other hand may stimulate efficiency differentiation among farm groups and lead to a rise in farm land prices lee 1980a while a machinery using bias accelerates the rate of investment in agricultural machinery all of these affect the income distribution as well as the economic growth path of the economy in spite of its importance there are relatively few empirical studies of biases in technological change the purpose of this paper is to present first an empirical method of measuring technological change biases in many factor production with an application to postwar japanese agriculture and then to investigate the factors that guided the evolution of biases in agriculture sources of biases have been one of the critical concerns of growth economics relative factor prices have been asserted to be the prime motivator of biases however land size per farm output price and innovation lags are also important factors affecting technological change biases the fundamental method used here to test these hypotheses is to measure the biases in four regions among which economic variables have been lifferent or have moved at different rates and then to examine the relationship between the measured biases and the economic variables since the japanese agriculture sector has undergone substantial technological changes in the rapid economic growth since the second world war it provides an ideal case study which is of considerable relevance to similar but less developed countries in south east asia in the first section we present a theory of measuring biases in many factor production using a production function approach in section ii the homogeneous translog production function is estimated with micro farm data on rice production in postwar japan section iii analyses the characteristic structure of technological change in postwar japanese agriculture and then investigates the sources of the biases following the method presented in the final section we draw conclusions about the sources and implications of the measured biases

potential pitfalls for the purchasing power parity puzzle sampling and specification biases in mean reversion tests of the law of one price the ppp puzzle is based on empirical evidence that international price differences for individual goods loop or baskets of goods ppp appear highly persistent or even nonstationary the present consensus is these price differences have a half life that is of the order of five years at best and infinity at worst this seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons typically days or weeks however current empirics rely on a particular choice of methodology involving i relatively low frequency monthly quarterly or annual data and ii a linear model specification in fact these methodological choices are not innocent and they can be shown to bias analysis towards findings of slow convergence and a random walk intuitively if we suspect that the actual adjustment horizon is of the order of days then monthly and annual data cannot be expected to reveal it if we suspect arbitrage costs are high enough to produce a substantial band of inaction then a linear model will fail to support convergence if the process spends considerable time random walking in that band thus when testing for ppp or loop model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets

asymmetric price responses market integration and market power a study of the u s natural gas market we studied the market performance at selected representative natural gas trading hubs in the u s and documented different price behaviors among various hubs with nymex prices as the competitive benchmark we found empirically that the spot price responses at some trading hubs were systematically asymmetric thus demonstrating a market advantage by either buyers or sellers we further found that the presence of market power was a very plausible explanation for this price behavior at some hubs

median unbiased estimation in df gls regressions and the ppp puzzle using median unbiased estimation recent research has questioned the validity of rogoff s remarkable consensus of 3 5 year half lives of deviations from ppp these half life estimates however are based on estimates from regressions where the resulting unit root test has low power we extend median unbiased estimation to the df gls regression of elliott rothenberg and stock 1996 we find that median unbiased estimation based on this regression has the potential to tighten confidence intervals for half lives using long horizon real exchange rate data we find that the typical lower bound of the confidence intervals for median unbiased half lives is just under 3 years thus while previous confidence intervals for half lives are consistent with virtually anything our tighter confidence intervals now rule out economic models with nominal rigidities as candidates for explaining the observed behavior of real exchange rates therefore while we obtain more information using efficient unit root tests on longer term data this information moves us away from solving the ppp puzzle

bayesian analysis of nonlinear exchange rate dynamics and the purchasing power parity persistence puzzle abstract we investigate the persistence of real exchange rates using bayesian methods first an algorithm for bayesian estimation of nonlinear threshold models is developed unlike standard grid based estimation the bayesian approach fully captures joint parameter uncertainty and uncertainty about complicated functions of the parameters such as the half life measure of persistence based on generalized impulse response functions second model comparison is conducted via marginal likelihoods which reflect the relative abilities of models to predict the data given prior beliefs about model parameters this comparison is conducted for a range of linear and nonlinear models and provides a direct evaluation of the importance of nonlinear dynamics in modeling exchange rates the marginal likelihoods also imply weights for a model averaged measure of persistence the empirical results for real exchange rate data from the g7 countries suggest general support for nonlinearity with the strength of the evidence depending on which country pair is being considered however the model averaged estimates of half lives are almost always as small or smaller than for the linear models alone suggesting that the purchasing power parity persistence puzzle is less of a puzzle than previously thought

on the failure of purchasing power parity for bilateral exchange rates after 1973 point estimates suggest mean reversion in real exchange rates however it still remains uncomfortable that models without any mean reversion are often compatible with data from the floating period studies with data over longer periods find mean reversion but at the cost of mixing in data from earlier exchange rate arrangements pooling the floating period data potentially mixes country pairs with and without mean reversion we examine tests for mean reversion for individual country pairs where greater power against close alternatives is gained through modeling other economic variables with the real exchange rate by increasing the power of the tests we find strong evidence of mean reversion

a real options perspective on the future of the euro abstract a break up of the eurozone is no longer regarded as implausible this will be a costly and irreversible decision in conditions of continuing uncertainty therefore it is amenable to analysis in the real options framework we do so by solving as an n dimensional optimal stopping problem with country specific shocks and convergence of member economies we compare a complete break up with individual country departures in calibrated solutions for a symmetric case we find a non negligible but small option value furthermore we find a new theoretical result on the non monotonicity of abandonment threshold with respect to volatility

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

size distortions of tests of the null hypothesis of stationarity evidence and implications for the ppp debate abstract tests of the null hypothesis of stationarity against the unit root alternative play an increasingly important role in empirical work in macroeconomics and in international finance we show that the use of conventional asymptotic critical values for stationarity tests may cause extreme size distortions if the model under the null hypothesis is highly persistent this fact calls into question the use of these tests in empirical work we illustrate the practical importance of this point for tests of long run purchasing power parity ppp under the recent float we show that the common practice of viewing tests of stationarity as complementary to tests of the unit root null will tend to result in contradictions and in spurious rejections of long run ppp while the size distortions may be overcome by the use of finite sample critical values the resulting tests tend to have low power under economically plausible assumptions about the half life of deviations from ppp thus the fact that stationarity is not rejected cannot be interpreted as convincing evidence in favor of mean reversion only in the rare case that stationarity is rejected do size corrected tests shed light on the question of long run ppp

panel stationarity tests for purchasing power parity with cross sectional dependence we investigate the purchasing power parity ppp hypothesis for a group of 17 countries using a new panel based test of stationarity that allows for arbitrary cross sectional dependence we treat the short run time series dynamics nonparametrically and thus avoid the need to fit separate and potentially misspecified models for the individual series the statistic is simple to compute and uses standard normal critical values even in the presence of a wide range of different deterministic components we also evaluate the behavior of the test using a factor model to approximate cross sectional dependence and find that it generally improves finite sample performance taken together these features provide a widely applicable solution to the problem of testing for stationarity versus unit roots in macro panel data the test finds significant evidence against the ppp null hypothesis being true even when allowance is made for structural breaks

business cycles and the exchange rate system some international evidence this paper investigates the differences in time series behavior of key economic aggregates under alternative exchange rate systems we use a postwar sample of 49 countries to compare the behavior of output consumption trade flows government consumption spending and real exchange rates under alternative exchange rate systems pegged floating and cooperative systems such as the ems we then examine evidence from two particular episodes involving canada and ireland of changes in the exchange rate system aside from greater variability of real exchange rates under flexible than under pegged nominal exchange rate systems we find little evidence of systematic differences in the behavior of macroeconomic aggregates or international trade flows under alternative exchange rate systems these results are of interest because a large class of theoretical models implies that the nominal exchange rate system has important effects on a number of macroeconomic quantities

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

empirical modelling of regional house prices and the ripple effect this paper investigates the stationarity properties and long run relationship of taiwan s regional house prices from 1993q1 to 2009q2 it applies the recent unit root test of the panel seemingly un

financial integration of east asian economies evidence from real interest parity in this article we investigate the financial linkages between the east asian economies with japan and the united states we test for long run real interest rate parity rip using an array of panel data techniques including recent techniques developed by breuer et al 2002 and carrion i silvestre et al 2005 this study offers two important results first the failure to account for structural breaks in the industrialized countries and asian emerging economies is likely to provide evidence of nonstationary series that are stationary second we found strong evidence that the parity condition holds in all the asian countries the failure of earlier studies to confirm mean reversion of real interest rate differential rid may reflect the choice of estimation testing procedure rather than any inherent deficiency in the rip

aggregate real exchange rate persistence through the lens of sectoral data a novel approach to analyzing real exchange rate rer persistence and its sources is presented using highly disaggregated data for a group of eu 15 countries it is shown that the distribution of sectoral persistence is highly heterogeneous and skewed to the right so that a limited number of sectors are responsible for the high levels of persistence observed at the aggregate level quantile regression has been employed to investigate whether traditional theories such as the lack of arbitrage due to nontradability or imperfect competition combined with price stickiness are able to account for the slow reversion to parity of rers

quantifying the uncertainty about the half life of deviations from ppp we propose a bayesian framework in which the uncertainty about the half life of deviations from purchasing power parity can be quantified based on the responses to a survey study we propose a prior probability distribution for the half life under the recent float intended to capture widely held views among economists we derive the posterior probability distribution of the half life under this consensus prior and confirm the presence of substantial uncertainty about the half life we provide for the first time a comprehensive formal evaluation of several nonnested hypotheses of economic interest including rogoff s 1996 claim that the half life is contained in the range of 3 to 5 years we find that no hypothesis receives strong support from the data copyright 2002 john wiley sons ltd

factor models and time varying parameter framework for forecasting exchange rates and inflation a survey a survey of models used for forecasting exchange rates and inflation reveals that the factor based and time varying parameter or state space models generate superior forecasts relative to all other models this survey also finds that models based on taylor rule and portfolio balance theory have moderate predictive power for forecasting exchange rates the evidence on the use of bayesian model averaging approach in forecasting exchange rates reveals limited predictive power but strong support for forecasting inflation overall the evidence overwhelmingly points to the context of the forecasts relevance of the historical data data transformation choice of the benchmark selected time horizons sample period and forecast evaluation methods as the crucial elements in selecting forecasting models for exchange rate and inflation

border region panel evidence on ppp deviations this article examines prices for 32 identical menu items sold by restaurant franchises operating on both sides of the border between el paso in the us and ciudad juarez in mexico from july 1997 to june 2008 the relationship between real exchange rate rer volatility and the degree of price convergence is examined within a panel data context the city pair and goods selected provide a unique experiment in which distance tradability and industry considerations are set aside and the extent of rer volatility is the only factor to influence price convergence we find nonmonotonic relationships between mean reversion and rer volatility very fast adjustments for both low and high volatility panels of goods between 1 and 2 months and slower half lives between 3 and 4 months at moderate levels of uncertainty these figures are however substantially smaller than the 6 or 7 months reported in previous research for general us mexico goods suggesting the very strong price convergence observed along the us m

expanding versus greening long term energy and emission transitions in mozambique abstract mozambique is rapidly emerging as one of the leading energy producers in africa we develop a comprehensive scenario analysis to review the energy revolution in mozambique like much of africa mozambique features a competition between development of its vast reserves of renewable energy and fossil fuels we assess the implied energy and emissions transitions as well as the potential impact of a range of sustainable policy options our analysis reveals an emerging energy dichotomy where a spectacular expansion of energy production goes together with an only gradual energy consumption transition we find that over time the share of modern renewable energy sources tends to marginalize in the energy production mix while remaining stable in the energy consumption mix about one third of the ghg emissions associated with energy production can be linked to energy export also we find that sustainable energy policies at the supply side lead to far higher cumulative emission reductions than demand side policies finally we show that even in the long run a complete ban on thermal electricity generation capacity in mozambique would by no means lead to shortages in the domestic electricity market but only slightly limit potential electricity export

international evidence on tradables and nontradables inflation abstract using 1970 1985 sectoral data for the oecd we find that inflation in nontradable goods exceeds inflation in tradables we identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation in addition disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate

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

how puzzling is the ppp puzzle an alternative half life measure of convergence to ppp summary evidence of lengthy half lives for real exchange rates in the presence of a high degree of exchange rate volatility has been considered as one of the most puzzling empirical regularities in international macroeconomics this paper suggests that the measure of half life used in the literature might be problematic and proposes alternative measures with desirable properties their focus on the cumulative effects of the shocks distinguishes them from the measures used in the literature an empirical analysis of bilateral us dollar real exchange rates employing the alternative half life measure produces results consistent with theory and indicates that the ppp puzzle is less pronounced than initially thought copyright 2012 john wiley sons ltd

flexible inflation targets forex interventions and exchange rate volatility in emerging countries abstract emerging economies with inflation targets it face a dilemma between fulfilling the theoretical conditions of strict it which imply a fully flexible exchange rate or applying a flexible it which entails a de facto managed floating exchange rate with foreign exchange forex interventions to moderate exchange rate volatility using a panel data model for 37 countries we find that although it lead to higher exchange rate instability than alternative regimes forex interventions in some it countries have been more effective to lower volatility than in non it countries which may justify the use of flexible it by policymakers

local persistence and the ppp hypothesis abstract this paper examines the statistical properties of the bilateral real exchange rates of the u s vs france germany and the u k during the post bretton woods period and draws implications on the purchasing power parity ppp hypothesis contrary to traditional studies that consider only unit root and stationary processes to describe the real exchange rate behavior this paper considers an in between process the locally persistent process the empirical results demonstrate the following two findings 1 locally persistent processes describe the real exchange rate movements better than unit root and stationary processes which implies that ppp reversion occurs and ppp holds in the long run 2 the confidence intervals for half life deviations from ppp under local persistence tend to be narrower than those obtained by assuming the adf and the local to unity models

generalized long memory and mean reversion of the real exchange rate definitive evidence regarding a rapid mean reversion of the real exchange rate is not present when using standard linear methodology including unit root tests and fractional integration to consider the robustness of these results we use an encompassing model the gegenbauer autoregressive moving average garma model which nests as special cases the existing linear methods the garma model accommodates a complete notion of persistence and allows shocks to dissipate slowly in a cyclical manner we find evidence supporting a weak version of purchasing power parity where equilibrium errors are long memory with strongly persistent cycles however this new form of cyclical mean reversion is likely too slow to be economically meaningful the inability to find a strong equilibrium attractor process using a very general encompassing linear methodology provides support for the recent models that allow for a nonlinear attraction process and for shifting real exchange rate equilibria

on cross country differences in the persistence of real exchange rates abstract previous findings of long run purchasing power parity come mainly from data for industrial countries raising the issue of whether the results suffer sample selection bias and exaggerate the general relevance of parity reversion this study uncovers substantial cross country heterogeneity in the persistence of deviations from parity the results show that it is more likely rather than less likely to find parity reversion for developing countries than industrial countries although some persistence variations may partly reflect country differences in structural characteristics such as inflation experience and government spending a considerable portion of those variations seems unaccounted for

purchasing power parity in developing countries multi period evidence under the current float abstract using panel unit root tests we examine purchasing power parity ppp for us dollar real exchange rates of developing countries during the current floating rate period since evidence of ppp may vary from period to period we examine the data for moving 10 year periods from 1976 85 up to 1990 99 we organize panels based on country characteristics influencing the validity of ppp those characteristics include openness inflation and the level and growth rate of per capita gdp although we find stronger evidence of ppp after 1980 our examination of panel data over 15 10 year periods yields only limited support for ppp

dissecting the ppp puzzle the unconventional roles of nominal exchange rate and price adjustments the conventional view as expounded by sticky price models is that price adjustment determines the ppp reversion rate this study examines the mechanism by which ppp deviations are corrected nominal exchange rate adjustment not price adjustment is shown to be the key engine governing the speed of ppp convergence moreover nominal exchange rates are found to converge much more slowly than prices with the reversion being driven primarily by nominal exchange rates real exchange rates also revert at a slower rate than prices as identified by the ppp puzzle j econ lit 34 1996 647 c 2003 elsevier b v all rights reserved

the link between life insurance activities and economic growth some new evidence abstract this paper applies the panel seemingly unrelated regressions augmented dickey fuller suradf test to re investigate the stationarity properties of real life insurance premiums per capita and real gross domestic product gdp per capita for 41 countries within three levels of income covering 1979 2007 our empirical results first reveal that the variables in these countries are a mixture of i 0 and i 1 processes and that the traditional panel unit root tests could lead to misleading inferences second for the estimated half lives the degrees of mean reversion are greater in high income countries third there is concrete evidence favoring the hypothesis of a long run equilibrium relationship between real gdp and real life insurance premiums after allowing for the heterogeneous country effect the long run estimated panel parameter results indicate that a 1 increase in the real life premium raises real gdp by 0 06 finally we determine that the development of life insurance markets and economic growth exhibit long run and short run bidirectional causalities these findings offer several useful insights for policy makers and researchers

exchange rate predictability the main goal of this article is to provide an answer to the question does anything forecast exchange rates and if so which variables it is well known that exchange rate fluctuations are very difficult to predict using economic models and that a random walk forecasts exchange rates better than any economic model the meese and rogoff puzzle however the recent literature has identified a series of fundamentals methodologies that claim to have resolved the puzzle this article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an up to date thorough empirical analysis overall our analysis of the literature and the data suggests that the answer to the question are exchange rates predictable is it depends on the choice of predictor forecast horizon sample period model and forecast evaluation method predictability is most apparent when one or more of the following hold the predictors are taylor rule or net foreign assets the model is linear and a small number of parameters are estimated the toughest benchmark is the random walk without drift

demand changes and real exchange rate dynamics in a finite horizon model with sectoral adjustment costs author affiliation hung ju chen department of economics national taiwan university 21 hsu chow road taipei 100 taiwan e mail hjc ntu edu tw corresponding author chen min hsu department of economics national taiwan university 21 hsu chow road taipei 100 taiwan e mail chenmin ntu edu tw acknowledgment we would like to acknowledge the financial support provided by the program for globalization studies at the institute for advanced studies in humanities national taiwan university grant 95r0064 ah03 03 we wish to express our sincere appreciation for helpful comments and suggestions provided by two anonymous referees the editor of the journal joshua aizenman been lon chen ming chia li tsunao okumura and elias sanidas as well as participants at the 2007 annual conference of the asia pacific economic association and the 2007 conference of korea and the world economy we also thank ke shaw lian for his assistance any errors within the work are our responsibility 1 introductionalthough the traditional macroeconomic models tend to explain economic fluctuations by focusing solely on supply shocks given that equilibrium is determined by both demand and supply it would seem obvious that changes in demand may also have important effects in terms of their contribution to economic oscillations changes in demand can easily occur particularly for those small open economies for example small open economies can be easily disturbed by external shocks such as terms of trade shocks through international trade 1 another example is the reduction in the mortality rate as a result of higher health investment both public and private and better healthcare during the economic development 2 for export orientated growth economies in particular such as those of hong kong and taiwan changes in either the terms of trade or the mortality rate can significantly influence economic performance impacting the real exchange rate investment output savings and the current account the phenomenon that life expectancy is steadily lengthening for most developing countries has led to the emergence of a growing number of studies on the impact of population aging 3 since an increase in life expectancy will change the expectation of lifetime utility it will directly affect households inter temporal decisions with regard to consumption and savings however previous studies tend to analyze the impact of mortality decline in a closed economy or in a small open economy with exogenous and constant factor prices 4in order to study the impact of mortality rate changes on the economic performance in an open economy we use the overlapping generations model with uncertain lifetime developed by yaari 1965 and blanchard 1985 to examine household savings behavior within this model agents live with a finite lifetime such that different types of agents simultaneously live in the economy 5 furthermore we extend the blanchard type model to a three good open economy composed of exportable importable and non traded goods to allow us to consider the dynamics of the real exchange rate when demand changes capital production and accumulation are also incorporated into the framework to facilitate an examination of the investment behavior of firms we assume that the economy uses both capital and labor to produce exportable goods and non traded goods while importable goods are imported from abroad capital is produced by the non traded sector and installation costs are incurred when capital is transported to the exportable sector 6 as indicated by morshed and turnovsky 2004 the inclusion of the sectoral adjustment costs of capital can generate persistent deviations from the long run equilibrium by the real exchange rate in response to demand changes 7 because the real exchange rate is playing a dual role of a non traded goods price and a capital price we are able to study the impact of population aging and terms of trade shocks on international capital flows in a small open economy with endogenous factor prices

real interest parity rip over the 20th century new evidence based on confidence intervals for the largest root and the half life abstract in this paper we employ local to unity asymptotics to investigate the validity of real interest parity rip for three countries relative to the us using long span data we find that deviations from parity are corrected quickly and this is what could in principle be expected to happen in an integrated world where economic forces act rapidly so that discrepancies do not grow systematically over time moreover the observed speed of reversion raises important issues for policy in that the tendency for rates to converge implies that the impact of the domestic authorities stabilization polices might be limited finally there is no clear cut difference in the adjustment to shocks across fixed and floating regimes

the real exchange rate regime changes and volatility shifts 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

techno economic and environmental analysis of power generation expansion plan of ghana this paper examines the current electrical generation expansion plan of ghana and compares it with proposed expansion pathways with higher penetration of renewable energy technologies an adaptation of schwartz s scenario methodology was used to develop the scenarios which were then analysed using the long range alternatives planning leap model each of the scenarios represents policy options for generation expansion in ghana up to 2040 energy economic and environmental analysis of the three alternative scenarios compared to the base scenarios was undertaken sensitivity results show that if the country were to follow the generation expansion path described in the renewable energy scenarios it could reap economic benefits of 0 5 13 23 depending on the developments in fuel prices and renewable technology capital cost the analysis further quantifies benefits to be derived from a reduction in greenhouse gases of the scenarios policy implications for the generation system of ghana based on the results are also discussed

dynamic persistence of primary commodity prices this article examines the persistence of shocks to international commodity prices from 1900 to 2008 using the updated grilli yang index the main innovation of this study is that it determines whether commodity prices are characterized by multiple changes in persistence specifically bootstrap methods are used to estimate persistence and the associated half life shocks are calculated we find that the persistence of shocks can vary widely depending on the individual commodity and the time period the results suggest that policy makers need to exercise caution when introducing measures to cushion the effect of shocks to world commodity prices

driving effect of technology innovation on energy utilization efficiency in strategic emerging industries abstract under the policy of energy saving and emission reduction technological innovation has become the key power driver to improve energy utilization efficiency by using the panel data of 21 industrial segments between 2000 and 2015 this paper investigates the driving effect of technological innovation on energy utilization efficiency in strategic emerging industries and analyzes the critical factors influencing the driving effect of technological innovation by the stochastic frontier analysis method the empirical result shows that technological innovation between 2000 and 2015 has had a significant positive driving effect on the energy utilization efficiency of strategic emerging industries and exhibits a development trend of year by year steady state growth on the whole the greater the value of the development expenditure of new green products and the investment in environmental pollution treatment the greater the technological efficiency the greater the value of the transformation expenditure of energy saving technology the greater the technological inefficiency finally the paper proposes the countermeasures and suggestions for the driving effect of technological innovation on energy utilization efficiency in strategic emerging industries an empirical study is made to analyze the driving effect of technological innovation on energy utilization efficiency the positive and negative factors of technological innovation are forgotten strategic emerging industries can select optimal innovation behavior to improve quality and efficiency of energy utilization based on the results

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

real exchange rates under the gold standard can they be explained by the trend break model abstract we investigate whether real exchange rates under the gold standard can be modeled as stationary around a broken trend using both conventional unit root and sequential trend break tests we clearly reject the unit root null for 14 of the 16 exchange rates studied by diebold husted and rush journal of political economy 1991 99 and provide some evidence against a unit root for another we interpret our results as being complementary to the evidence for fractional integration found by diebold husted and rush in both cases the unit root null can be decisively rejected if the alternative is more flexible than a deterministic trend without breaks

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

real exchange rates and productivity evidence from asia this paper examines a productivity based explanation of the long run real exchange rate movements of six asian economies using industry level data we construct total factor productivities tfps for the tradable and nontradable sectors we find that a within each country the relative price of nontradable goods is cointegrated with the sectoral tfp differential and b the real exchange rates are cointegrated with the home and foreign sectoral tfp differentials using the predicted real exchange rate as a measure of the long run equilibrium we find that most asian economies real exchange rates are overvalued before the asian financial crisis

aggregation is not the solution the ppp puzzle strikes back we acknowledge financial support from the spanish ministry of education through grants sej2006 00369 and sej2005 05215 the fundacion ramon areces the barcelona economics program of crea and from the aragon s research unit seim

the long term forecast of taiwan s energy supply and demand leap model application abstract the long term forecasting of energy supply and demand is an extremely important topic of fundamental research in taiwan due to taiwan s lack of natural resources dependence on energy imports and the nation s pursuit of sustainable development in this article we provide an overview of energy supply and demand in taiwan and a summary of the historical evolution and current status of its energy policies as background to a description of the preparation and application of a long range energy alternatives planning system leap model of taiwan s energy sector the taiwan leap model is used to compare future energy demand and supply patterns as well as greenhouse gas emissions for several alternative scenarios of energy policy and energy sector evolution results of scenarios featuring business as usual policies aggressive energy efficiency improvement policies and on schedule retirement of taiwan s three existing nuclear plants are provided and compared along with sensitivity cases exploring the impacts of lower economic growth assumptions a concluding section provides an interpretation of the implications of model results for future energy and climate policies in taiwan

long memory in foreign exchange rates using the geweke porter hudak test we find evidence of long memory in exchange rate data this implies that the empirical evidence of unit roots in exchange rates may not be robust to long memory alternatives fractionally integrated autoregressive moving average arfima models are estimated by both the time domain exact maximum likelihood ml method and the frequency domain approximate ml method impulse response functions and forecasts based on these estimated arfima models are evaluated to gain insight into the long memory characteristics of exchange rates some tentative explanations of the long memory found in the exchange rates are discussed

purchasing power parity and country characteristics evidence from panel data tests abstract we examine long run purchasing power parity ppp using panel data methods to test for unit roots in us dollar real exchange rates of 84 countries we find stronger evidence of ppp in countries more open to trade closer to the united states with lower inflation and moderate nominal exchange rate volatility and with similar economic growth rates as the united states we also show that ppp holds for panels of european and latin american countries but not for african and asian countries our findings demonstrate that country characteristics can help explain both adherence to and deviations from long run ppp

the purchasing power parity persistence paradigm abstract rogoff journal of economic literature 1996 34 647 668 describes the remarkable consensus of 3 5 year half lives of purchasing power parity deviations among studies using long horizon data these studies however focus on rejections of unit roots in real exchange rates and do not use appropriate techniques to measure persistence our half life estimates explicitly account for serial correlation sampling uncertainty and most importantly small sample bias calculating confidence intervals as well as point estimates for long horizon and post 1973 data we find that even though most of the point estimates lie within the 3 5 year range univariate methods provide virtually no information regarding the size of the half lives

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

sectoral adjustment costs and real exchange rate dynamics in a two sector dependent economy abstract this paper develops a two sector model in which intersectoral capital movements involve adjustment costs expressed as capital lost in the transformation process these costs have important consequences for the dynamics of capital accumulation and particularly for real exchange rate dynamics persistent deviations of the real exchange rate from its equilibrium are derived and for plausible values of the adjustment cost parameters are consistent with the observed degree of real exchange rate persistence for low adjustment costs the dynamics are qualitatively similar to those of the standard heckscher ohlin technology for high adjustment costs the model converges to the specific factors model thus our framework includes these two standard models as polar extremes

the role of renewable energy to validate dynamic interaction between co2 emissions and gdp toward sustainable development in malaysia abstract closing the gap between economy activity and environmental quality is one of the solutions for reaching sustainable development in malaysia to do so the cubic polynomial functional form of ekc is utilized by accommodating renewable energy into the base of the ekc model and validating its hypothesis between co 2 emissions and gdp growth for the 1971 2015 period the f bounds vecm granger causality cusum and cusumsq tests are utilized the estimated results consistently show that the inverted n shaped ekc hypothesis holds in malaysia ceteris paribus the co 2 emissions will be declined when the gdp reach rm2841 9 billion in 2030 which is beyond the sample period the renewable energy has a negative significant effect on co 2 emissions and the direction of causality is running from co 2 emissions to renewable energy also the gdp growth will be the remedy for environmental pollution problems and that renewable energy is one of important elements to be considered for improving environmental quality a tighter and concentrated environmental policy is needed to direct the environment economic growth nexus toward a downward trend consequently these results may help malaysian policymakers to establish an energy policy that guarantees a balance between economic growth and environmental prosperity

a fractional cointegration analysis of purchasing power parity a generalized notion of cointegration called fractional cointegration is introduced to examine the long run purchasing power parity ppp hypothesis by allowing deviations from equilibrium to follow a fractionally integrated process the fractional cointegration analysis can capture a wider range of mean reversion behavior than standard cointegration analyses this gain is flexibility in modeling subtle mean reverting dynamics is found to be important for a proper evaluation of long run ppp empirical results based on historical data for the 1914 1989 period show that ppp reversion exists and can be characterized by a fractionally integrated process in three out of five countries studied the results support ppp as a long run phenomenon though significant short run deviations from ppp can exist

do real exchange rates follow a nonlinear mean reverting process in developing countries in an effort to fight relatively high inflation many developing countries try to manage their nominal exchange rates through official intervention in addition developing countries tend to have high transportation costs tariffs and nontariff barriers these factors are among the sources of generating nonlinearity in real exchange rates and hence some nonlinear adjustment toward purchasing power parity ppp in developing countries in this paper we employ monthly real effective exchange rate reer data of 88 developing countries and test the null of nonstationarity versus an alternative of linear stationarity by the means of a conventional unit root test and compare the results with those obtained from a new test in which the null is the same but the alternative hypothesis is nonlinear stationarity the latter test supports the ppp theory in more developing countries compared with the former test suggesting that nonlinear adjustment toward ppp in developing countries is an important phenomenon reported country characterizations indicate that reversion in reer occurs more often for high inflation countries and for countries with high flexibility in their exchange rates

temporal aggregation and purchasing power parity persistence this paper uses a unique new monthly us uk real exchange rate series for the january 1794 december 2009 period to reexamine the academic debate over purchasing power parity ppp the consensus view described by rogoff 1996 is that ppp holds in the long run but short run deviations are very persistent with half lives ranging from 3 to 5 years most of the literature using long time series relies on the annual data developed by lee 1976 and lothian and taylor 1996 which were both constructed from underlying higher frequency data sources estimates of purchasing power parity persistence using these series may therefore be subject to temporal aggregation bias we find evidence of aggregation bias which indicates the half life of ppp deviations has been overestimated in much of the previous literature we also find that estimates of the half lives are further reduced once we account for the harrod 1933 balassa 1964 samuelson 1964 effect the result of aggregation bias appears to be robust even when considering the case that real exchange rates exhibit nonlinear dynamics

sustainable energy development in nigeria current status and policy options abstract sustainable energy development focuses on maintaining the provision of energy in a manner that can enhance the short medium and long term economic development of a country the provision of sustainable energy requires the development and implementation of technologies that can improve the energy situation of a given country such as renewable energy energy efficient technologies and the proper use of conventional energy resources to achieve this effective energy policy options must be instigated that can adjust to changing circumstances in nigeria the development of sustainable clean modern energy is an immense challenge as is the proper use of the country s conventional energy resources this is as due to the lack of effective support policies and poor participation by the government in clean energy development the energy situation in nigeria could be improved by the provision of adequate energy policy options designed to augment existing energy policies this study critically reviews the current status of energy resources in nigeria and the associated policies important policies unavailable under current government strategies are proposed and prioritised based on their likelihood of success in short medium and long term among the most important policies based on priorities are policies to address crude oil theft complete deregulation of the petroleum subsectors utilisation of associated gases creation of favourable business climate for private investors increase attraction for foreign direct investment in clean energy technology renewable portfolio standards development introduction of tendering schemes use of efficient fuel stoves development of demand side bidding and energy efficiency standard law we believe that these proposed policy options could improve the sustainable development of nigeria s energy resources

biased technological change and factor demand in postwar japanese agriculture 1958 84 abstract the objective of this study is to gain a better understanding of factor substitutions in postwar japanese agriculture by shedding special light on biased technological change such biased technological change is first measured then associated with the movements of factor prices and then tested for the hicksian induced innovation hypothesis in addition a decomposition analysis is carried out in order to quantitatively examine the importance of the biased effects for determining changes in factor cost shares and factor proportions during the 1958 84 period a slightly modified stevenson greene model of the translog cost function is employed this model has at least two important advantages over ordinary translog cost functions first it incorporates time into the model such that all coefficients of the ordinary translog cost function may change over time this is more realistic than the ordinary translog cost function which assumes that all coefficients are constant over the period of estimation another attractive feature is that it enables us to test the induced innovation hypothesis directly the model is applied to the 1958 84 period by making use of farm level data the results show that technological change was biased towards saving labor and other inputs and using machinery intermediate inputs and land this biased technological change is found to be in principle consistent with the induced innovation hypothesis furthermore it is shown through decomposition analyses that the biased technological change had significant impacts on changes in factor cost shares and factor proportions during these years the empirical results of this study imply that technological change in japanese agriculture has in general proceeded in a manner consistent with factor endowments conditions since the late 1950s an implication of this study for agriculture in less developed countries is that agricultural policies seeking development through technological progress should be carried out so as to take advantage of peculiar factor endowments conditions in the individual countries

central bank intervention exchange rate regime and the purchasing power parity motivated by the argument that central bank intervention leads to non linear exchange rate adjustment processes we examine purchase power parity ppp by applying quantile unit root tests to the exchange rates of the new taiwan dollar ntd vis a vis seven asian currencies we show that exchange rate regime matters in determining whether ppp holds while ppp holds overwhelmingly during the period when the ntd is under the fixed exchange rate regime it is present only for some exchange rates during the managed floating rate regime for exchange rates exhibiting mean reversion the reversion occurs mainly when the shocks are large in contrast to conclusion in the literature our test results show little evidence of asymmetric mean reversion between positive and negative shocks

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

smooth structural breaks and the stationarity of the yen real exchange rates this article examines and solves an interesting paradox in the literature that the tests for purchasing power parity ppp based on the yen real exchange rates rers refute the ppp hypothesis more often than those with other major currency based rers and the evidence is sensitive to the sample period used using a new empirical methodology accounting for both nonlinearity and multiple smooth temporary breaks in the data we show that the puzzling finding is due to the failure to take into account the long but temporary large rise and fall in the yen rers the results illustrate that the yen rers in the post bretton woods period are likely mean reverting with linear or nonlinear adjustment toward large long swing type of infrequent smooth temporary changes around constant equilibrium values supporting the validity of ppp and resolving the paradox

parity reversion in real exchange rates during the post bretton woods period abstract a common view among recent studies on purchasing power parity is that the post bretton woods period is far too short to reveal any significant parity reversion in individual series of real exchange rates is this really so the answer this study shows depends very much on the statistical test being used two efficient univariate unit root tests are applied to uncover parity reversion these tests require much shorter sample sizes than conventional tests to attain the same statistical power empirical results show that parity reversion can be unveiled over the modern float if an efficient unit root test is applied

median unbiased estimation of structural change models an application to real exchange rate persistence measuring deviations from purchasing power parity has been the subject of extensive investigation the most common practice in empirical research for measuring real exchange rate persistence is to estimate univariate autoregressive ar time series models and calculate the half life defined as the number of periods for a unit shock to a time series to decay by 50 in the presence of structural change there are two potential biases in the parameter estimates of ar models 1 a downward small sample median bias and 2 an upward bias which occurs when structural change is present and ignored we conduct a variety of monte carlo simulations and demonstrate that the existence of structural change causes a substantial increase in the small sample bias documented in andrews 1993 we then propose an extension of median unbiased estimation which explicitly accounts for structural change and apply these methods to estimate half lives of several long horizon real exchange rates analysed by lothian and tayl

confidence intervals for half life deviations from purchasing power parity existing point estimates of half life deviations from purchasing power parity ppp around 3 5 years suggest that the speed of convergence is extremely slow this article assesses the degree of uncertainty around these point estimates by using local to unity asymptotic theory to construct confidence intervals that are robust to high persistence in small samples the empirical evidence suggests that the lower bound of the confidence interval is between four and eight quarters for most currencies which is not inconsistent with traditional price stickiness explanations however the upper bounds are infinity for all currencies so we cannot provide conclusive evidence in favor of ppp either

real exchange rates in the short medium and long run abstract this paper uses long horizon autocorrelations and variance ratio statistics to test for long term mean reversion in real exchange rates unlike most previous tests of this hypothesis the tests do reject a random walk for monthly data in the post bretton woods era however the statistics indicate that positively correlated innovations rather than mean reversion are the source of the rejection tests using annual data for the twentieth century also reject the random walk in this case however the rejection can be attributed to mean reversion and confirms that ppp is a long term phenomenon

parity reversion in the asian real exchange rates new evidence from the local persistent model this article investigates the time series properties of 13 asian real exchange rates rers vis a vis the us dollar the half life point estimates drawn from the local persistent model are all less than 2 years with a finite upper bound there is no evidence to indicate that the asian financial crisis has altered the speed of the purchasing power parity ppp adjustments we find that the persistence of rers over the last three decades remains unchanged in majority of the cases given the fairly rapid speed of adjustments and their corresponding confidence intervals we conclude that the ppp puzzle does not exist in these countries

real exchange rate adjustment in european transition countries abstract in single equation tests real exchange rates show mean reversion for nine of 10 central and eastern european transition countries for the period january 1993 to december 2005 because of the shift from controlled to market economies and accompanying crises failed policy regimes and changes in exchange rate regimes unit root tests for transition countries often require allowance for structural changes accounting for structural breaks gives substantially faster mean reversion speeds than those found for major industrialized countries these fast adjustment speeds are plausible transition countries had perhaps 10 years to make unprecedented adjustments required for accession to the european union a number of papers have applied non linear models to the central and eastern european countries this paper investigates four non linear models and compares them with piece wise linear break models the break models appear superior in detecting mean reversion for the central and eastern european transition countries

ppp strikes back aggregation and the real exchange rate we show the importance of a dynamic aggregation bias in accounting for the ppp puzzle we prove that the aggregate real exchange rate is persistent because its components have heterogeneous dynamics established time series and panel methods fail to control for this using eurostat data we find that when heterogeneity is taken into account the estimated persistence of real exchange rates falls dramatically its half life for instance may fall to as low as eleven months significantly below the consensus view of three to five years

geographic aggregation and induced innovation in american agriculture the induced innovation hypothesis is tested for the usa and western regions using cointegration procedures an error correction model separates short run and long run effects of relative price changes a significant difference in the elasticities of factor substitution along the isoquant and the innovation possibility curve implies induced innovation the estimated results support the hypothesis for washington the pacific northwest and the western region but not for the nation corroborative tests of weak exogeneity fail to support the hypothesis in any of the geographic units changes in output level and research investment do not significantly bias agricultural technology in the usa

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

energy models for demand forecasting a review abstract energy is vital for sustainable development of any nation be it social economic or environment in the past decade energy consumption has increased exponentially globally energy management is crucial for the future economic prosperity and environmental security energy is linked to industrial production agricultural output health access to water population education quality of life etc energy demand management is required for proper allocation of the available resources during the last decade several new techniques are being used for energy demand management to accurately predict the future energy needs in this paper an attempt is made to review the various energy demand forecasting models traditional methods such as time series regression econometric arima as well as soft computing techniques such as fuzzy logic genetic algorithm and neural networks are being extensively used for demand side management support vector regression ant colony and particle swarm optimization are new techniques being adopted for energy demand forecasting bottom up models such as markal and leap are also being used at the national and regional level for energy demand management

modeling energy and development an evaluation of models and concepts most global energy models are developed by institutes from developed countries focusing primarily on issues that are important in industrialized countries evaluation of the results for asia of the ipcc sres models shows that broad concepts of energy and development the energy ladder and the environmental kuznets curve can be observed in the results of the models however improvements can be made in modeling the issues that underlie these concepts like traditional fuels electrification economic structural change income distribution and informal economies given the rapidly growing importance of energy trajectories of developing countries for global sustainability the challenge for the future is to develop energy models that include all these aspects of energy and development

the persistence of inflation in the united states abstract has the persistence of inflation in the united states changed since 1965 we estimate the persistence of inflation over time using different measures and estimation procedures and we produce confidence intervals for our estimates as well as formal tests of unchanged persistence we find that inflation persistence has been high and approximately unchanged in the u s over our sample period we reconcile our results with other studies that reached different conclusions

energy policy for low carbon development in nigeria a leap model application this paper applied a scenario based analysis to explore nigeria s future energy demand supply and associated ghg emissions from 2010 to 2040 using the long range energy alternative planning leap model the impact of different energy policies are analysed for the nigerian energy system by considering four scenarios the reference scenario ref the low carbon moderate scenario lcm the low carbon advanced scenario lca and the green optimistic scenario go by considering aggressive energy policies and strategies from lcm to lca and even more aggressive options in the go scenario we find that under the ref scenario energy demand is expected to reach 3 075 pj and a corresponding increase in ghg emissions of 201 2 mt co2e by 2040 more aggressive policy intervention by the nigerian government as in the go scenario would lead to a decrease in energy demand 2 249 pj and ghg emissions 124 4 mt co2e in 2040 a cost benefit and energy system analysis were also carried out in the study

exchange rate economics is always and everywhere controversial abstractthis article reviews the major developments in the recent literature on exchange rate economics it is argued that the link between the exchange rate and economic fundamentals is breaking new ground evidence indicates that alternative analytical frameworks such as the new open economy macroeconomics and exchange rate arrangements such as the euro have their theoretical and analytical elegance but are proving empirically very difficult to implement the role of methodological advances and alternative fundamental instruments such as world commodity prices is also highlighted

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

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

additional evidence of long run purchasing power parity with restricted structural change we investigate two alternative versions of purchasing power parity ppp reversion to a constant mean in the spirit of cassel and reversion to a constant trend in the spirit of balassa and samuelson using long span real exchange rate data for industrialized countries we develop unit root tests that both account for structural change and maintain a long run mean or trend with conventional tests previous research finds evidence of some variant of ppp for 9 of the 16 countries with the unit root tests in the presence of restricted structural change we find evidence of ppp for five additional 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