Purchasing Power Parity Over Two Centuries: Strengthening the Case for Real Exchange Rate Stability Reply to Cuddington and Liang

6 Pages Posted: 7 Nov 2004  

James R. Lothian

Gabelli School of Business, Fordham University; National Bureau of Economic Research (NBER)

Mark P. Taylor

Washington University in St. Louis - John M. Olin Business School; Centre for Economic Policy Research (CEPR)

Abstract

Cuddington and Liang (2000)[Purchasing Power parity over two centuries? Journal of International Money and Finance, 19, 751-755] examine the long span of sterling-dollar real exchange rate data of Lothian and Taylor (1996) [Real exchange rate behavior: the recent float from the perspective of the past two centuries. Journal of Political Economy, 104, 488-509] and claim to reject long-run purchasing power parity by fitting time trends or by considering very high-order autoregressive representations. This reply demonstrates, however, that the central claims of Lothian and Taylor are in fact strengthened by the implications of Cuddington and Liang's analysis in that, while the economic importance of introducing trend terms is slight, this leads to a faster estimated speed of mean reversion.

Keywords: Real exchange rates, purchasing power parity

JEL Classification: F31, F41, C22

Suggested Citation

Lothian, James R. and Taylor, Mark P., Purchasing Power Parity Over Two Centuries: Strengthening the Case for Real Exchange Rate Stability Reply to Cuddington and Liang. Journal of International Money and Finance, October 2000. Available at SSRN: https://ssrn.com/abstract=613946

James R. Lothian (Contact Author)

Gabelli School of Business, Fordham University ( email )

113 West 60th Street
New York, NY 10023
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National Bureau of Economic Research (NBER)

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Mark Peter Taylor

Washington University in St. Louis - John M. Olin Business School ( email )

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Campus Box 1156
St. Louis, MO 63130-4899
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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