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Understanding The Ppp Puzzle
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Book Synopsis Understanding the PPP Puzzle by : Shifu Jiang
Download or read book Understanding the PPP Puzzle written by Shifu Jiang and published by . This book was released on 2017 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We model the real exchange rates between the US and 18 OECD countries by an innovative dynamic process called integral correction mechanism, and allow a real exchange rate equilibrium determined by Harrod-Balassa-Samuelson effects. The Harrod-Balassa-Samuelson effect works through a direct channel and a terms of trade channel. We find that the terms of trade channel is significant in more countries than the direct channel. Using a popular smooth transition autoregression model as a benchmark, we find that our model often statistically outperforms the benchmark. And the origin of this superiority is that our model captures autocorrelation functions of the real exchange rates very well. Our model features that the real exchange rate reverts to its equilibrium very quickly in the short run but moves back and forth around the equilibrium in the long run. These particular dynamics help us understand Rogoff's PPP puzzle and forecast the real exchange rate.
Book Synopsis The 'real' Explanation of the PPP Puzzle by : Nicholas Ford
Download or read book The 'real' Explanation of the PPP Puzzle written by Nicholas Ford and published by . This book was released on 2016 with total page 5 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article shows that global financial markets cannot, by themselves, achieve net transfers of financial capital and real interest rate equalisation across countries and that the integration of both global financial markets and global goods markets is needed to achieve net transfers of capital and real interest rate equalisation across countries. Thus, frictions (barriers to mobility) in one or both of these markets can impede the net transfer of capital between countries, produce the Feldstein and Horioka (1980) finding of high saving-investment correlations, and prevent real interest rates from being equalised across countries. Moreover, frictions in global goods markets can explain why real exchange rates deviate from PPP (purchasing power parity) for extended periods of time and can therefore also explain the PPP puzzle. Thus, we are able to resolve 2 of Obstfeld and Rogoff's (2000) "6 major puzzles in macroeconomics" with essentially the same explanation.
Download or read book PPP Strikes Back written by Mr.Jean Imbs and published by International Monetary Fund. This book was released on 2003-04-01 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show the importance of a dynamic aggregation bias in accounting for the PPP puzzle. We prove that established time-series and panel methods substantially exaggerate the persistence of real exchange rates because of heterogeneity in the dynamics of disaggregated relative prices. When heterogeneity is properly taken into account, estimates of the real exchange rate half-life fall dramatically, to little more than one year, or significantly below Rogoff's "consensus view" of three to five years. We show that corrected estimates are consistent with plausible nominal rigidities, thus, arguably, solving the PPP puzzle.
Book Synopsis How Puzzling is the PPP Puzzle? by :
Download or read book How Puzzling is the PPP Puzzle? written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Aggregation and the PPP Puzzle in a Sticky-price Model by :
Download or read book Aggregation and the PPP Puzzle in a Sticky-price Model written by and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis "Aggregation Bias" Does Explain the PPP Puzzle by :
Download or read book "Aggregation Bias" Does Explain the PPP Puzzle written by and published by . This book was released on 2005 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Dissecting the PPP Puzzle by : Yin-Wong Cheung
Download or read book Dissecting the PPP Puzzle written by Yin-Wong Cheung and published by . This book was released on 2003 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis 'Aggregation Bias' Does Explain the PPP Puzzle by : Jean Imbs
Download or read book 'Aggregation Bias' Does Explain the PPP Puzzle written by Jean Imbs and published by . This book was released on 2005 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This article summarizes our views on the role of an "aggregation bias" in explaining the PPP (i.e. purchasing power parity) Puzzle, in response to the several papers recently written in reaction to our initial contribution. We discuss in particular the criticisms of Imbs, Mumtaz, Ravn and Rey (2002) presented in Chen and Engel (2005). We show that their contentions are based on: (i) analytical counter-examples which are not empirically relevant; (ii) simulation results minimizing the extent of "aggregation bias"; (iii) unfounded claims on the impact of measurement errors on our results; and (iv) problematic implementation of small-sample bias corrections. We conclude, as in our original paper, that "aggregation bias" goes a long way towards explaining the PPP puzzle"--National Bureau of Economic Research web site.
Download or read book The PPP Puzzle written by and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Does "aggregation Bias" Explain the PPP Puzzle? by : Shiu-Sheng Chen
Download or read book Does "aggregation Bias" Explain the PPP Puzzle? written by Shiu-Sheng Chen and published by . This book was released on 2004 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Recently, Imbs et. al. (2002) have claimed that much of the purchasing power parity puzzle can be explained by 'aggregation bias'. This paper re-examines aggregation bias. First, it clarifies the meaning of aggregation bias and its applicability to the PPP puzzle. Second, the size of the 'bias' is shown to be much smaller than the simulations in Imbs et. al. (2002) suggest, if we rule out explosive roots in the simulations. Third, we show that the presence of non-persistent measurement error especially in the Imbs et. al. (2002) data can make price series appear less persistent than they really are. Finally, it is now standard to recognize that small-sample bias plagues estimates of speeds of convergence of PPP. After correcting small sample bias by methods proposed by Kilian (1998) and by So and Shin (1999), the half-life estimates indicate that heterogeneity and aggregation bias do not help to solve the PPP puzzle"--NBER website
Book Synopsis Potential Pitfalls for the Purchasing-power-parity Puzzle? by : Alan M. Taylor
Download or read book Potential Pitfalls for the Purchasing-power-parity Puzzle? written by Alan M. Taylor and published by . This book was released on 2000 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: The PPP puzzle is based on empirical evidence that international price differences for individual goods (LOOP) or baskets of goods (PPP) appear highly persistent or even non-stationary. The present consensus is these price differences have a half-life that is of the order of five years at best, and infinity at worst. This seems unreasonable in a world where transportation and transaction costs appear so low as to encourage arbitrage and the convergence of price gaps over much shorter horizons, typically days or weeks. However, current empirics rely on a particular choice of methodology, involving (i) relatively low-frequency monthly, quarterly, or annual data, and (ii) a linear model specification. In fact, these methodological choices are not innocent, and they can be shown to bias analysis to-wards findings of slow convergence and a random walk. Intuitively, if we suspect that the actual adjustment horizon is of the order of days then monthly and annual data cannot be expected to reveal it. If we suspect arbitrage costs are high enough to produce a substantial band of inaction' then a linear model will fail to support convergence if the process spends considerable time random-walking in that band. Thus, when testing for PPP or LOOP, model specification and data sampling should not proceed without consideration of the actual institutional context and logistical framework of markets.
Download or read book Bitcoin and the PPP Puzzle written by and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Bitcoin and the PPP Puzzle by : Paolo Tasca
Download or read book Bitcoin and the PPP Puzzle written by Paolo Tasca and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper approaches the PPP puzzle by using the Bitcoin/US Dollar exchange rate. The use of the virtual currency as macroeconomic laboratory allows us to remove frictions that previously impeded the empirical demonstration of the law of one price. We show that price adjustments are still far from perfect due to information asymmetry between agents. Nevertheless, the real exchange rate is stationary and adjusts by 81% within one day. Finally, because of the different speed of information spread, good market arbitrage takes place in the Bitcoin economy but not in the US economy. Thus, we conclude that in a frictionless economy the PPP holds and the speed of arbitrage for the good market depends on the speed of information spread among agents.
Book Synopsis Dissecting the PPP Puzzle by : Yin-Wong Cheung
Download or read book Dissecting the PPP Puzzle written by Yin-Wong Cheung and published by . This book was released on 2003 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Purchasing Power Parity and Real Exchange Rates by : Mark P. Taylor
Download or read book Purchasing Power Parity and Real Exchange Rates written by Mark P. Taylor and published by Routledge. This book was released on 2013-09-13 with total page 227 pages. Available in PDF, EPUB and Kindle. Book excerpt: The term Purchasing Power Parity may date from the early twentieth century, when it was coined by the Swedish economist Gustav Cassel, but the underlying concept had been enjoying varying degrees of success since its development in sixteenth century Spain. Even towards the end of the twentieth century, and especially since the breakdown of the Bretton Woods system of fixed exchange rates, PPP and the stability of real exchange rates continued to be the subject of academic debate. This volume brings together essays covering aspects of current thinking on Purchasing Power Parity, from the various ways in which to test for its existence, to its appearance in different economies around the world, to examinations of the explanations given when PPP does not appear to hold This book was published as a special issue of Applied Financial Economics. The academic editor of this journal is Mark P. Taylor.
Book Synopsis A Prism Into the PPP Puzzles by : David C. Parsley
Download or read book A Prism Into the PPP Puzzles written by David C. Parsley and published by . This book was released on 2004 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The real exchange rate (RER) has been called the single most important price, yet its behavior exhibits several puzzles. In this project, we use Big Mac prices as a unique prism to study the movement of real exchange rates. Part of our innovation is to match these prices to the prices of individual ingredients. There are a number of advantages associated with our approach. First, unlike the CPI RER, we can measure the Big Mac RER in levels. Second, unlike the CPI RER, for which the attribution to tradable and non-tradable components involves assumptions on the weights and the functional form, we (almost) know the exact composition of a Big Mac, and can estimate the tradable and non-tradable components relatively precisely. Third, we can study the dynamics of the RER in a setting free of: the product-aggregation bias, the temporal aggregation bias, and the bias generated by non-compatible consumption baskets across countries. Fourth that Engel's result that deviations from the law of one price are sole explanation for RER movements does not hold generally. We offer some evidence that departure from the Engel effect can be systematically linked to economic factors"--NBER website
Download or read book Getting PPP Right written by and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent advances in testing for the validity of Purchasing Power Parity (PPP) focus on the time series properties of real exchange rates in panel frameworks. One weakness of such tests, however, is that they fail to inform the researcher as to which cross-section units are stationary. As a consequence, a reservation for PPP analyses based on such tests is that a small number of real exchange rates in a given panel may drive the results. In this paper we examine the PPP hypothesis focusing on the stationarity of the real exchange rates in up to 25 OECD countries. We introduce a methodology that when applied to a set of established panel-unit-root tests, allows the identification of the real exchange rates that are stationary. We apply procedures that account for cross-sectional dependence. Our results reveal evidence of mean-reversion that is significantly stronger as compared to that obtained by the existing literature, strengthening the case for PPP. Moreover, our approach can be used to provide half-lives estimates for the mean-reverting real exchange rates. We find that the half-lives are shorter than the literature consensus and therefore that the PPP puzzle is less pronounced than initially thought. -- PPP ; Panel unit root tests ; Real exchange rates ; Half-lives ; PPP puzzle
