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

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

View graph of relations

Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)115-132
Journal / PublicationJournal of International Money and Finance
Volume20
Issue number1
StatePublished - Feb 2001
Externally publishedYes

Abstract

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