The behaviour of real exchange rates: The case of japan

Ming Jen Chang, Chang Ching Lin, Shou Yung Yin

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

This study examines the convergence rate of mean reversion by estimating the half-lives of sectoral real exchange rates using an extensive product price panel for Japan (with the USA as the numéraire). We find that the half-lives of sectoral real exchange rates are remarkably distorted when the grouped half-life is measured inappropriately and the cross-sectional dependence and potential trend breaks are ignored. After taking account of these problems, the bias-corrected half-life for all goods is as low as 3.00 years, close to the bottom of the consensus view of 3 to 5 years. Moreover, the bias-corrected half-life of mean reversion is 2.40 years for traded goods, and only approximately half that for non-traded goods. Finally, our findings also support the view that small-sample bias correction is critical for half-life estimations.

Original languageEnglish
Pages (from-to)530-545
Number of pages16
JournalPacific Economic Review
Volume18
Issue number4
DOIs
Publication statusPublished - 2013 Oct

All Science Journal Classification (ASJC) codes

  • Geography, Planning and Development
  • Development
  • Aerospace Engineering

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