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The Roles of Nominal Exchange Rate and Relative Price Adjustments in PPP Reversion

Title
The Roles of Nominal Exchange Rate and Relative Price Adjustments in PPP Reversion
Author
남덕우
Keywords
F31; F37; purchasing power parity; nonlinear real exchange rate adjustment; threshold cointegration; generalized impulse response
Issue Date
2011-06
Publisher
Blackwell Publishing Ltd
Citation
Journal of money, credit, and banking, 2011, 43(4), P.775-785
Abstract
This paper investigates the roles of the nominal exchange rate and relative prices in restoring purchasing power parity (PPP) by estimating their dynamics with a bivariate threshold vector error correction model. Our empirical results suggest a threshold cointegrating relationship between the nominal exchange rate and relative prices. However, these two variables play different roles in restoring PPP. The nominal exchange rate adjusts to restore PPP only outside the threshold band. Within the band, PPP is restored mainly through adjustments in relative prices.
URI
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1538-4616.2011.00396.xhttp://hdl.handle.net/20.500.11754/66712
ISSN
0022-2879
DOI
10.1111/j.1538-4616.2011.00396.x
Appears in Collections:
COLLEGE OF ECONOMICS AND FINANCE[S](경제금융대학) > ECONOMICS & FINANCE(경제금융학부) > Articles
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