Central banks’ inflation targeting and real exchange rates: Cointegration with structural breaks

2019 ◽  
Vol 14 (1) ◽  
pp. 89-102
Author(s):  
Svetlana Bekareva ◽  
Ekaterina Meltenisova ◽  
Nataliya Kravchenko
Keyword(s):  
Exchange Rates ◽  
Inflation Targeting ◽  
Structural Breaks ◽  
Real Exchange Rates ◽  
Central Banks

Before the Fall

2017 ◽  
Author(s):  
Martin Sandbu
Keyword(s):  
Interest Rate ◽  
Exchange Rates ◽  
Monetary Union ◽  
Current Account ◽  
Real Exchange Rates ◽  
Central Banks ◽  
Current Account Deficits ◽  
Nominal Exchange Rates ◽  
European Economies

This chapter discusses the role of Europe's monetary union in creating a crisis that first erupted in US mortgages. Because of their monetary union, European economies racked up greater risks in the 2000s boom than they would have done had they kept their individual currencies. The factors invoked to blame the euro include the destabilising effect of a single interest rate for the entire eurozone; the misalignment of real exchange rates when nominal exchange rates could no longer adjust; the ability to run current account deficits that were too large and lasted too long; and, finally, the fact that debt was accumulated in a currency that could not be printed at will by national central banks. The chapter argues that all these factors have been commonly misunderstood.

scholarly journals Persistence in real exchange rate convergence

2014 ◽  
Vol 18 (1) ◽  
Author(s):  
Thanasis Stengos ◽  
M. Ege Yazgan
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Long Memory ◽  
Structural Breaks ◽  
Real Exchange Rates ◽  
Purchasing Power ◽  
Memory Process ◽  
Power Parity ◽  
Long Memory Process ◽  
Memory Parameter

AbstractIn this paper we use a long memory framework to examine the validity of the Purchasing Power Parity (PPP) hypothesis using both monthly and quarterly data for a panel of 47 countries over a 50 year period (1957–2009). The analysis focuses on the long memory parameter d that allows us to obtain different convergence classifications depending on its value. Our analysis allows for the presence of smooth structural breaks and it does not rely on the use of a benchmark. Overall the evidence strongly points to the presence of a long memory process, where 0.5<d<1. The implication of our results is that we find long memory mean reverting convergence, something that is also consistent with Pesaran, M. H., R. P. Smith, T. Yamagata, and L. Hvozdyk. 2009. “Pairwise Tests of Purchasing Power Parity.” Econometric Reviews 28: 495–521. In explaining the speed of convergence as captured by the estimated long memory parameter d we find impediments to trade such as distance between neighboring countries and sticky prices to be mainly responsible for the slow adjustment of real exchange rates to PPP rather than nominal rates for all country groups but Asia, where the opposite is true.

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