On Cross-Country Differences in the Persistence of Real Exchange Rates

By Yin-Wong Cheung, K. Lai. Social Science Research Network, 2000

169 citations recorded by the source corpus.

Previous findings of long-run purchasing power parity come mainly from data for industrial countries, raising the issue of whether the results suffer sample-selection bias and exaggerate the general relevance of parity reversion. This study uncovers substantial cross-country heterogeneity in the persistence of deviations from parity. The results show that it is more likely, rather than less likely, to find parity reversion for developing countries than industrial countries. Although some persistence variations may partly reflect country differences in structural characteristics such as inflation experience and government spending, a considerable portion of those variations seems unaccounted for.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/ae27c077e896227e8229c8c534961217fd972515

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Citations in the corpus

Purchasing power parity and country characteristics: Evidence from panel data tests (2007, methodology): “Cheung and Lai (2000), using the DF-GLS tests of Elliott, Rothenberg and Stock (1996), report more rejections of the unit root hypothesis, but mostly at a weak (10 percent) significance level.”
Dissecting the PPP Puzzle: The Unconventional Roles of Nominal Exchange Rate and Price Adjustments (2004, unknown): “Papell, 1997; Cheung and Lai, 1998, 2000a; Taylor and Sarno, 1998; Engel, 1999, gives an”
International Investment Positions and Exchange Rate Dynamics: A Dynamic Panel Analysis (2007, background): “While these differences in empirical findings may in part be attributed to choice of econometric methodology, the differences have also emerged due to different currency pairs and/or different time periods being considered.”
Persistence in law of one price deviations: Evidence from micro-data (2008, result): “4This faster adjustment in LDCs was also observed in the cross country study of PPP by Cheung and Lai (2000).”
Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study (2004, background): “See also the empirical study by Cheung et al. (2001), who examine the relationship between market structure and the persistence of US dollar-denominated sectoral real exchange rates using annual data for 14 major industrialized countries.”
Optimal Power for Testing Potential Cointegrating Vectors With Known Parameters for Nonstationarity (2004, methodology): “An initial approach (for the PPP hypothesis see, e.g., Cheung and Lai 2000; for income convergence see Greasley and Oxley 1997 and, in a multivariate setting, Bernard and Durlauf 1995) was to realize that with γ known, one could simply undertake a univariate test for a unit root in yt − γ � xt. An”
A Faith-Based Initiative Meets the Evidence: Does a Flexible Exchange Rate Regime Really Facilitate Current Account Adjustment? (2013, background): “This finding does not fit in with Cheung and Lai (2000), Cheung, Chinn, and Fujii (2001), and Cashin and McDermott (2006), but is in 14 See Chinn (2006) for a discussion of effective exchange rates.”