Confidence intervals for half-life deviations from purchasing power parity
Existing point estimates of half-life deviations from purchasing power parity (PPP), around 3–5 years, suggest that the speed of convergence is extremely slow. This article assesses the degree of uncertainty around these point estimates by using local-to-unity asymptotic theory to construct confiden...
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| Tipo de documento: | artigo |
| Estado: | Versión aceptada para publicación |
| Data de publicação: | 2005 |
| País: | España |
| Recursos: | Universitat Pompeu Fabra |
| Repositório: | Repositorio Digital de la UPF |
| OAI Identifier: | oai:repositori.upf.edu:10230/36404 |
| Acesso em linha: | http://hdl.handle.net/10230/36404 http://dx.doi.org/10.1198/073500105000000027 |
| Access Level: | Acceso aberto |
| Palavra-chave: | Half-life Persistence Purchasing power parity Roots close to unity |
| Resumo: | Existing point estimates of half-life deviations from purchasing power parity (PPP), around 3–5 years, suggest that the speed of convergence is extremely slow. This article assesses the degree of uncertainty around these point estimates by using local-to-unity asymptotic theory to construct confidence intervals that are robust to high persistence in small samples. The empirical evidence suggests that the lower bound of the confidence interval is between four and eight quarters for most currencies, which is not inconsistent with traditional price-stickiness explanations. However, the upper bounds are infinity for all currencies, so we cannot provide conclusive evidence in favor of PPP either. |
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