Long memory and nonlinear mean reversion in Japanese yen-based real exchange rates

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)115-132
Journal / PublicationJournal of International Money and Finance
Issue number1
Publication statusPublished - Feb 2001
Externally publishedYes


The extraordinary difficulty in uncovering parity reversion in yen-based real exchange rates has often been ascribed to a missing trend variable. This study identifies an alternative explanation and shows that the puzzling behavior of real yen rates may stem from long-memory dynamics, which undermine unit-root tests in their ability to detect mean reversion. The long-memory findings are consistent with the long swings in yen exchange rates during the current float. Further analysis also reveals evidence of non-monotonic reversion toward parity. © 2001 Elsevier Science Ltd.

Research Area(s)

  • Amplified shock response, F31, F41, Long swings, Long-memory dynamics, Non-monotonic mean reversion, Purchasing power parity