Purchasing Power Parity and the Taylor Rule

Journal of Applied Econometrics - Tập 30 Số 6 - Trang 874-903 - 2015
Hyeongwoo Kim1, Ippei Fujiwara2, Bruce E. Hansen3, Masao Ogaki4
1Department of Economics, Auburn University, AL, USA
2Crawford School of Public Policy and Centre for Applied Macroeconomic Analysis, Australian National University, Canberra, ACT, Australia
3Department of Economics, University of Wisconsin, Madison, WI, USA
4Department of Economics, Keio University, Tokyo, Japan

Tóm tắt

SummaryIt is well known that there is a large degree of uncertainty around Rogoff's consensus half‐life of the real exchange rate. To obtain a more efficient estimator, we develop a system method that combines the Taylor rule and a standard exchange rate model to estimate half‐lives. Further, we propose a median unbiased estimator for the system method based on the generalized method of moments with non‐parametric grid bootstrap confidence intervals. Applying the method to real exchange rates of 18 developed countries against the US dollar, we find that most half‐life estimates from the single equation method fall in the range of 3–5 years, with wide confidence intervals that extend to positive infinity. In contrast, the system method yields median‐unbiased estimates that are typically shorter than 1 year, with much sharper 95% confidence intervals. Our Monte Carlo simulation results are consistent with an interpretation of these results that the true half‐lives are short but long half‐life estimates from single‐equation methods are caused by the high degree of uncertainty of these methods. Copyright © 2014 John Wiley & Sons, Ltd.

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Thông tin xuất bản

Journal of Applied Econometrics

Tập 30 Số 6

874-903

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