Home bias and the persistence of real exchange rates

This paper investigates the half-life of real exchange rates after taking into account the impact of home bias. Empirical results indicate that the half-life of real exchange rates is in the range of 1.5 to 2years for four out of five countries after controlling the impact of home bias. These results support Obstfeld and Rogoff's (2000, NBER Macroeconomics Annual) view that home bias is crucial in explaining the PPP puzzle.

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Year of publication:	2011
Authors:	Chen, Show-Lin ; Wu, Jyh-Lin
Published in:	Economic Modelling. - Elsevier, ISSN 0264-9993. - Vol. 28.2011, 1, p. 55-59
Publisher:	Elsevier
Subject:	Home bias \| Real exchange rates \| Half-life \| Local projections

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Type of publication:	Article
Classification:	F31 - Foreign Exchange ; C22 - Time-Series Models ; C51 - Model Construction and Estimation
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010573295