Searching for long-range dependence in real effective exchange rate: towards parity? A fractional approach
DOI:
https://doi.org/10.1590/0101-416145485amfPalavras-chave:
Paridade do poder de compra, Persistência, Integração fracionária, Taxa de câmbio realResumo
After the widespread adoption of flexible exchange rate regime since 1973, the volatility of the exchange rate has increased, as a consequence of greater trade openness and financial integration among countries. Thus, it has become difficult to find concrete evidence of the purchasing power parity hypothesis. This study investigates the possibility of a fall in the persistence of the real exchange rate as a consequence of the financial and commercial integration by employing monthly dataset provided by the International Monetary Fund. Beginning with an exploratory data analysis, and by combining two complementary unit root tests, the fractional coefficient d was estimated employing the bias-reduced estimator on a sample of 20 countries over the period ranging from 1975 to 2011. As a main novelty, this study applies a bias-reduced log-periodogram regression estimator instead of the traditional method proposed by GPH which eliminates the first and higher orders biases of the GPH estimator by a data-dependent plug-in method for selecting the number of frequencies to minimize asymptotic mean-squared error (MSE). Additionally, this study also estimates a moving window of fifteen years in order to observe the path of the fractional coefficient. No evidence was found of a statistically significant change in the persistence of the real exchange rate.
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