Long-Run Exchange Rate Dynamics: A Panel Data Study

Long-run movements of real exchange rates are studied using a panel data set comprising 51 economies. The purchasing power parity hypothesis (PPP) is examined first using unit root tests. It is found that PPP does not hold for the full sample of countries, but it may hold for the advanced economies, as well as open and high-inflation economies. Using the recently developed mean group and pooled mean group estimators, the paper finds support for the Balassa-Samuelson hypothesis in both advanced and developing economies; and for the influence of shifts in the terms of trade.
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Volume/Issue: Volume 1999 Issue 050
Publication date: April 1999
ISBN: 9781451846959
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Business and Economics , Exports and Imports , Inflation , WP , Exchange Rates , Panel Data Econometrics , Purchasing Power Parity (PPP) , Balassa-Samuelson Effect , Terms of Trade , exchange rate depreciation , MG estimate , inflation economy , terms of trade effect , mean group , PPP hypothesis , Real exchange rates , Purchasing power parity , Inflation , Africa , Global

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Summary

Long-run movements of real exchange rates are studied using a panel data set comprising 51 economies. The purchasing power parity hypothesis (PPP) is examined first using unit root tests. It is found that PPP does not hold for the full sample of countries, but it may hold for the advanced economies, as well as open and high-inflation economies. Using the recently developed mean group and pooled mean group estimators, the paper finds support for the Balassa-Samuelson hypothesis in both advanced and developing economies; and for the influence of shifts in the terms of trade.

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