NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries

Jeffrey A. Frankel, Andrew K. Rose

NBER Working Paper No. 5006
Issued in February 1995
NBER Program(s):   IFM

Previous time-series studies have shown evidence of mean- reversion in real exchange rates. Deviations from purchasing power parity (PPP) appear to have half-lives of approximately four years. However, the long samples required for statistical significance are unavailable for most currencies, and may be inappropriate because of regime changes. In this study, we re-examine deviations from PPP using a panel of 150 countries and 45 annual observations. Our panel shows strong evidence of mean-reversion that is similar to that from long time-series. PPP deviations are eroded at a rate of approximately 15% annually, i.e., their half-life is around four years. Such findings can be masked in time-series data, but are relatively easy to find in cross-sections.

download in pdf format
   (250 K)

email paper

This paper is available as PDF (250 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5006

Published: Journal of International Economics, Feb.1996, vol.40, no.1-2, pp.209-224. citation courtesy of

Users who downloaded this paper also downloaded these:
Froot and Rogoff w4952 Perspectives on PPP and Long-Run Real Exchange Rates
Taylor w8012 A Century of Purchasing-Power Parity
Frankel and Rose w4865 A Survey of Empirical Research on Nominal Exchange Rates
Dornbusch w1591 Purchasing Power Parity
Engel w5646 Long-Run PPP May Not Hold After All
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us