Long-Run Exchange Rate Dynamics: A Panel Data Study

25 Pages Posted: 12 Feb 2006

See all articles by Karl Habermeier

Karl Habermeier

International Monetary Fund (IMF)

Mario Mesquita

International Monetary Fund (IMF)

Date Written: April 1999

Abstract

Long-run movements of real exchange rates are studied using a panel data set comprising 51 economies. The purchasing power parity hypothesis (PPP) is examined first using unit root tests. It is found that PPP does not hold for the full sample of countries, but it may hold for the advanced economies, as well as open and high-inflation economies. Using the recently developed mean group and pooled mean group estimators, the paper finds support for the Balassa-Samuelson hypothesis in both advanced and developing economies; and for the influence of shifts in the terms of trade.

Keywords: Exchange Rates, Panel Data Econometrics, Purchasing Power Parity (PPP), Balassa-Samuelson Effect, Terms of Trade

JEL Classification: F31

Suggested Citation

Habermeier, Karl and Mesquita, Mario, Long-Run Exchange Rate Dynamics: A Panel Data Study (April 1999). IMF Working Paper No. 99/50, Available at SSRN: https://ssrn.com/abstract=880577

Karl Habermeier (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Mario Mesquita

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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