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Three essays on long run movements of real exchange rates

Park, Sungwook
http://rave.ohiolink.edu/etdc/view?acc_num=osu1180465881

Abstract Details

2007, Doctor of Philosophy, Ohio State University, Economics.
My dissertation studies statistical properties of the measure that Engel uses in his 1999 paper and presents new evidence in favor of the Balassa-Samuelson theory. The Balassa-Samuelson theory implies that the importance of the traded goods component in the real exchange rate movement decreases over time. Engel's empirical results,however, indicate that the importance is very high and even increasing for the long run for some countries. The tests based on Engel's measure show no statistical evidence for the decrease in the importance of the traded goods. My dissertation consists of three essays. The essay titled "Long-run Real Exchange Rate Changes and the Properties of the Variance of k-differences," examines the statistical properties of the measure Engel uses, the variance of k-differences. I show that the variance of k-differences tends to return to the initial value as k approaches the sample size whether the variable is stationary or unit root nonstationary. My results imply that the increasing variances for k-values close to the sample size cannot be interpreted as evidence of an increase in the importance. In my second essay, "A Monte Carlo Investigation on the Estimator of Ratio of Long Run Variances," I investigate whether the high level of importance Engel finds should be attributed to the high persistence of the traded goods component by means of a Monte Carlo simulation. My simulation results imply that the high ratio is more likely to be attributable to the volatility of errors of the traded goods component, not to its persistence. I also find that the power of the test based on Engel's measure is very low for given parameter values. In my third essay, "Higher Power Tests for the Failure of Long Run Purchasing Power Parity," I apply a covariate augmented point optimal test to three different real exchange rates, each of which is constructed with CPI, PPI, and Export/Import price index, respectively. The covariate test for the real exchange rates based on PPI and Export/Import price index gives approximately 50% rejection rate, which is comparably high and higher than that for CPI, consistent with the Balassa-Samuelson theory.
Masao Ogaki (Advisor)
123 p.
Economics, General
real exchange rates; Balassa-Samuelson theory; variance of k-differences; long run variances; Covariate unit root test

Recommended Citations

Citations

  • Park, S. (2007). Three essays on long run movements of real exchange rates [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1180465881

    APA Style (7th edition)

  • Park, Sungwook. Three essays on long run movements of real exchange rates. 2007. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1180465881.

    MLA Style (8th edition)

  • Park, Sungwook. "Three essays on long run movements of real exchange rates." Doctoral dissertation, Ohio State University, 2007. http://rave.ohiolink.edu/etdc/view?acc_num=osu1180465881

    Chicago Manual of Style (17th edition)

osu1180465881
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© 2007, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.