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

17 Pages Posted: 15 Feb 2006

See all articles by Tamim Bayoumi

Tamim Bayoumi

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 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 appear 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.

Keywords: Exchange rates, stationarity

JEL Classification: C12, C23, F31

Suggested Citation

Bayoumi, Tamim, Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions (May 1998). IMF Working Paper, Vol. , pp. 1-17, 1998. Available at SSRN: https://ssrn.com/abstract=882346

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
United States
202-623-6333 (Phone)
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

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