Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions

CEPR Discussion Paper Series No. 1932

Posted: 4 Dec 1998

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Ronald MacDonald

University of Strathclyde in Glasgow - Department of Economics; Government of New Zealand - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: July 1998

Abstract

We examine the mean-reverting properties of real exchange rates, by comparing the unit root properties of a group of international real exchange rates with two groups of intra-national real exchange rates. Strikingly, we find that while the international real rates taken as a group are mean-reverting, the intra-national rates are not. This is consistent with the view that while monetary shocks may be mean-reverting over the medium-term, underlying real factors do generate long-term trends in real exchange rates.

JEL Classification: C12, C23, F31

Suggested Citation

Bayoumi, Tamim and MacDonald, Ronald R., Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions (July 1998). CEPR Discussion Paper Series No. 1932. Available at SSRN: https://ssrn.com/abstract=137321

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

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Centre for Economic Policy Research (CEPR)

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Ronald R. MacDonald

University of Strathclyde in Glasgow - Department of Economics ( email )

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