Search Results
Working Paper
Quantifying the half-life of deviations from PPP: The role of economic priors
The half-life of deviations from purchasing power parity (PPP) plays a central role in the ongoing debate about the ability of macroeconomic models to account for the time series behavior of the real exchange rate. The main contribution of this paper is a general framework in which alternative priors for the half-life of deviations from PPP can be examined. We show how to incorporate formally the prior views of economists about the half-life. In our empirical analysis we provide two examples of such priors. One example is a consensus prior consistent with widely held views among economists ...
Journal Article
The growing significance of purchasing power parity
The principle of purchasing power parity is central to the theoretical underpinnings of the analysis of many trade issues, but up until recently, there was little evidence that PPP held in the long run. Current research has changed that. The key to finding the evidence was realizing how to test for a long-run effect given the fact that exchange rates adjust to their long-run levels in a nonlinear way.
Journal Article
Will China ever become as rich as the U.S.?
Twenty years ago, a visitor to Beijing would have been struck by the bicycle?s popularity as a form of mass transportation. Today, auto congestion and pollution on the increasingly clogged roads of China?s capital city are pervasive features. In a little more than three decades, China has transformed itself from a largely closed agrarian society to an urban exporting nation commonly viewed as the workshop of the world. ; At current growth rates, China will be the world?s largest economy sometime in the next decade. But will it ever be the richest? Though providing a definitive answer is ...
Working Paper
What determines European real exchange rates?
We study a newly constructed panel data set of relative prices of a large number of consumer goods among 31 European countries. We find that there is a substantial and nondiminishing deviation from PPP at all levels of aggregation, even among euro zone members. However, real exchange rates are very closely tied to relative GDP per capita within Europe, both across countries and over time. This relationship is highly robust at all levels of aggregation. We construct a simple two-sector endowment economy model of real exchange rate determination. Simulating the model using the historical ...
Journal Article
Britain's borrowed time
Journal Article
Understanding trends in foreign exchange rates
Journal Article
How exchange rates are determined
Journal Article
International output comparisons
Journal Article
How good is PPP?
Journal Article
$ Canadian: an exception