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The trend behavior of real exchange rates: Evidence from OECD countries

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Abstract

The Trend Behavior of Real Exchange Rates: Evidence from OECD Countries. — This paper examines the validity of purchasing power parity (PPP) under the current float using real effective exchange rates of eleven OECD countries. The author employs a test which allows for a one-time change in the intercept and/or in the slope of the trend function. The timing of the structural break is treated as unknown and is endogenously searched from the data. It is found that for a vast majority of countries, the real exchange rate can be characterized as a stationary process with a broken trend. The paper provides support for PPP in the long run.

Zusammenfassung

Das trendmäßige Verhalten von realen Wechselkursen. Evidenz aus OECD-Ländern. — Der Verfasser untersucht die Gültigkeit der Kaufkraftparität (PPP) beim gegenwärtigen Floating, indem er reale effektive Wechselkurse von elf OECD-Ländern verwendet. Er benutzt einen Test, der Raum läßt für einen einmaligen Wechsel des absoluten Gliedes und/oder in der Steigung der Trendfunktion. Der Zeitpunkt des strukturellen Umbruchs wird als Unbekannte behandelt und wird endogen aus den Daten ermittelt. Es zeigt sich für die große Mehrheit der Länder, daß der reale Wechselkurs als ein stationärer Prozeß mit einem gebrochenen Trend charakterisiert werden kann. Die Arbeit stützt die langfristige PPP.

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  1. Yangru Wu
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Wu, Y. The trend behavior of real exchange rates: Evidence from OECD countries. Weltwirtschaftliches Archiv 133, 282–296 (1997). https://doi.org/10.1007/BF02707464

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