International Investment Positions and Exchange Rate Dynamics: A Dynamic Panel Analysis
By Michael Binder, C. Offermanns. Social Science Research Network, 2007
128 citations recorded by the source corpus.
We revisit medium- to long-run exchange rate determination, focusing on the role of international investment positions. To do so, we make use of a new econometric framework accounting for conditional long-run homogeneity in heterogeneous dynamic panel data models. In particular, in our model the long-run relationship between effective exchange rates and domestic as well as weighted foreign prices is a homogeneous function of a country's international investment position. We find rather strong support for purchasing power parity in environments of limited negative net foreign asset to GDP positions; furthermore, long-run exchange rate equilibria may have little relation to purchasing power parity outside such environments. We thus argue that the purchasing power parity hypothesis holds conditionally, but not unconditionally, and that international investment positions are an essential component to characterizing this conditionality.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/61286d31d2af19d0e915c33e0b87a5bb11210f30
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In Economics and Econometrics
Citations in the corpus
- Foreign direct investment, trade openness and economic growth in BRICS countries: evidences from panel data (2020, methodology): “The Panel ARDL model had been used by Binder and Offermanns (2007) for the purchasing power parity analysis in Europe, Banday and Aneja (2019) for G7 countries and Bildirici (2014) for transition countries.”