Generalized long memory and mean reversion of the real exchange rate

$53.17 plus tax (Refund Policy)

Buy Article:

Abstract:

Definitive evidence regarding a rapid mean reversion of the real exchange rate is not present when using standard linear methodology, including unit root tests and fractional integration. To consider the robustness of these results, we use an encompassing model, the Gegenbauer AutoRegressive Moving Average (GARMA) model, which nests as special cases the existing linear methods. The GARMA model accommodates a complete notion of persistence and allows shocks to dissipate slowly in a cyclical manner. We find evidence supporting a weak version of purchasing power parity, where equilibrium errors are long memory with strongly persistent cycles. However, this new form of cyclical mean reversion is likely too slow to be economically meaningful. The inability to find a strong equilibrium attractor process, using a very general encompassing linear methodology provides support for the recent models that allow for a nonlinear attraction process and for shifting real exchange rate equilibria.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840701721349

Affiliations: 1: Department of Economics, Florida State Universtity, Tallahassee, FL, USA 2: Department of Economics, University of Texas-Arlington, Arlington, VA, USA

Publication date: April 1, 2010

More about this publication?
Related content

Share Content

Access Key

Free Content
Free content
New Content
New content
Open Access Content
Open access content
Subscribed Content
Subscribed content
Free Trial Content
Free trial content
Cookie Policy
X
Cookie Policy
ingentaconnect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more