Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod‐Balassa‐Samuelson Effect?*
James R. Lothian,Mark P. Taylor +1 more
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In this paper, the authors test for the presence of real effects on the equilibrium real exchange rate (the Harrod-Balassa-Samuelson, HBS effect) in an explicitly nonlinear framework and allowing for shifts in real exchange price volatility across nominal regimes.Abstract:
Using data since 1820 for the US, the UK and France, we test for the presence of real effects on the equilibrium real exchange rate (the Harrod-Balassa-Samuelson, HBS effect) in an explicitly nonlinear framework and allowing for shifts in real exchange rate volatility across nominal regimes. A statistically signifcant HBS effect for sterling-dollar captures its longrun trend and explains a proportion of variation in changes in the real rate that is proportional to the time horizon of the change. There is signifcant evidence of nonlinear reversion towards long-run equilibrium and downwards shifts in volatility during fixed nominal exchange rate regimes.read more
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The purchasing power parity debate
Alan M. Taylor,Mark P. Taylor +1 more
TL;DR: The long-run purchasing power parity (PPP) condition has been widely accepted as a long run equilibrium condition in the post-war period, and it first was advocated as a short-run equilibrium by many international economists in the first few years following the breakdown of the Bretton Woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s as discussed by the authors.
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A Century of Purchasing-Power Parity
TL;DR: The authors investigated purchasing power parity (PPP) since the late nineteenth century and found that episodes of floating exchange rates have generally been associated with larger deviations from PPP, as expected; this result is not attributable to significantly greater persistence (longer half-lives) of deviations in such regimes, but is due to the larger shocks to the real exchange rate process in such episodes.
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Real exchange rates and Purchasing Power Parity: mean-reversion in economic thought
TL;DR: In this paper, a critical review of the research literature on long-run purchasing power parity and the stability of real exchange rates is provided. But the review is limited to a single country.
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Productivity, Tradability, and the Long-Run Price Puzzle
TL;DR: This paper developed an updated Balassa-Samuelson (BS) model inspired by recent developments in trade theory, where a continuum of goods are differentiated by productivity, and where tradability is endogenously determined.
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Currency unions and trade: A post-EMU reassessment
Reuven Glick,Andrew K. Rose +1 more
TL;DR: The authors used a variety of empirical gravity models to estimate the currency union effect on trade and exports, using recent data which includes the European Economic and Monetary Union (EMU), and their preferred methodology indicates that EMU has boosted exports by around 50%.
References
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A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity
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A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix
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TL;DR: In this article, a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction is described.
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Testing for a Unit Root in Time Series Regression
TL;DR: In this article, the authors proposed new tests for detecting the presence of a unit root in quite general time series models, which accommodate models with a fitted drift and a time trend so that they may be used to discriminate between unit root nonstationarity and stationarity about a deterministic trend.