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Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries
Open accessAbstract
Using annual data spanning two centuries for dollar-sterling and franc-sterling real exchange rates, we find strong evidence of mean-reverting real exchange rate behavior. Using simple, stationary, autoregressive models estimated on prefloat data, we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float. Such stationary univariate equations explain 60-80 percent of the in-sample variation in real exchange rates, although the degree of short-run persistence may be high. The econometric estimates imply a half-life of shocks to the real exchange rate of about 6 years for dollar-sterling and a little under 3 years for franc-sterling.
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Cited by
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O'Connell, P. G. J. (1998) · Journal of International Economics · doi:10.1016/s0022-1996(97)00017-2 · Cited by 1,207
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PPP Strikes Back: Aggregation And the Real Exchange Rate
Imbs, J., Mumtaz, H., Ravn, M. O., & Rey, H. (2005) · The Quarterly Journal of Economics · doi:10.1162/0033553053327524 · Cited by 470
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“29 volatility remains persistent for at least an hour—indicating that much more is going in the market.32 Over longer horizons, by contrast, it is known that exchange rates converge towards fundamental values (see, e.g. Mark, 1995; Lothian and Taylor, 1996).”
BackgroundSelf-citation
Metadata
- Authors
- Lothian, J. R., & Taylor, M. P.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1996-06
- Volume
- 104
- Issue
- 3
- Pages
- 488-509
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2049752238
- Cited by
- 884
- References
- 0
- FWCI
- 84.84
- Type
- journal article
- Language
- en
- Open access
- green
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