Are Asia-Pacific Real Exchange Rates Stationary? A Regime-Switching Perspective

15 Pages Posted: 21 Apr 2010

See all articles by Mark J. Holmes

Mark J. Holmes

University of Waikato - Management School, Department of Economics

Abstract

This paper tests for long-run purchasing power (PPP) among nine Asia-Pacific countries. Non-stationarity of the real exchange rate is tested within a Markov regime-switching framework. Two new concepts of PPP are defined that allow for real exchange behaviour to switch between stationary and non-stationary regimes (partial PPP) or between stationary regimes of differing degrees of persistence (varied PPP). The results indicate that each country is characterized by at least one stationary regime. Indeed, five countries are characterized by two such regimes. Further analysis indicates that the Asian crisis of 1997 gave mixed impetus to the achievement of long-run PPP.

Suggested Citation

Holmes, Mark J., Are Asia-Pacific Real Exchange Rates Stationary? A Regime-Switching Perspective. Pacific Economic Review, Vol. 15, No. 2, pp. 189-203, May 2010, Available at SSRN: https://ssrn.com/abstract=1593298 or http://dx.doi.org/10.1111/j.1468-0106.2010.00497.x

Mark J. Holmes (Contact Author)

University of Waikato - Management School, Department of Economics ( email )

Hamilton
New Zealand

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