Purchasing Power Parity and the Real Exchange Rate

By Lucio Sarno, Mark P. Taylor. International Monetary Fund Staff Papers, 2001

575 citations recorded by the source corpus.

We assess the progress made by the profession in understanding real exchange rate behavior through a selective and critical, but nonetheless expository, review of the literature. Our reading of the literature leads us to the main conclusions that purchasing power parity might be viewed as a valid long-run international parity condition when applied to bilateral exchange rates obtaining among major industrialized countries, and that mean reversion in real exchange rates displays significant nonlinearities. However, further work investigating the effects of real shocks on the long-run equilibrium level also seems warranted.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e9b705b1faa06d6a64e42d99931b11406777c47e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Monetary Policy Rules, Asset Prices, and Exchange Rates (2003, background): “…secret even though standard theory suggests that official intervention in the foreign exchange market is (more) effective if it is announced (e.g. Sarno and Taylor, 2001).9 Second, asset prices that have explanatory power in characterizing interest rate changes are only a proxy for that part of…”
Are Asian Real Exchange Rates Stationary (2004, background): “E-mail address: chong2064@cuhk.edu.hk (T.T.L. Chong)”
Why is it so Difficult to Beat the Random Walk Rorecast of Exchange Rates? (2003, unknown): “…additional problems (Taylor, 1995; Taylor, Peel and Sarno, 2001) concerning possible regime shifts in the case of long-span studies (Hegwood and Papell, 1998) and problems in the interpretation of test procedures in the case of panel unit root tests (Taylor and Sarno, 1998; Sarno and Taylor, 2001).”
Testing the monetary model of exchange rate determination: new evidence from a century of data (2002, background): “The nominal exchange rate series are from Taylor (2001a), and the money supply and real GDP series are from Bordo and Jonung (1998) and Bordo et al.”
A PANEL DATA ANALYSIS OF THE NEXUS BETWEEN DEFENCE SPENDING AND GROWTH IN THE EUROPEAN UNION (2007, background): “Still, alternative tests to overcome this problem turn out to be generally less powerful (see also Sarno and Taylor, 2002 ).”
The distributional effects of capital account liberalization (2018, methodology): “29 This approach has been applied to model non-linearities in number of different economic issues such as exchange rates dynamics (Sarno and Taylor, 2002); sectoral performance during the business cycle (Fok and others 2005); money demand (Chen and Wu, 2005) fiscal multipliers (Auerbach and…”
Real exchange rates and Purchasing Power Parity: mean-reversion in economic thought (2006, background): “(Because Spain imported goods from the rest of Europe, prices in general rose 1 For previous surveys of the PPP literature (see, Breuer, 1994; Froot and Rogoff, 1995; Taylor, 1995; Rogoff, 1996; Sarno and Taylor, 2002a, b; Taylor and Taylor, 2004).”
Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod-Balassa-Samuelson Effect? (2008, unknown): “…movements in the nominal exchange rate among traders (Kilian and Taylor, 2003), or perhaps a greater likelihood of the occurrence and success of intervention by the authorities to correct a strongly misaligned exchange rate (Taylor, 1994, 2004, 2005; Sarno and Taylor, 2001; Reitz and Taylor, 2006).”