Measuring half-lives: using a non-parametric bootstrap approach

This paper extends the Murray and Papell (2002) study by using a non-parametric bootstrap approach which allows for non-normality, and focusing on quarterly real exchange rate in twenty OECD countries in the post-1973 floating period. Augmented Dickey-Fuller (ADF) regressions were run, and the half-lives (and confidence intervals) estimated from the corresponding impulse response functions. Further, an approximately median-unbiased estimator of the autoregressive parameters was used and the implied point estimates and confidence intervals reported. It is found that accounting for non-normality results in even higher estimates of the degree of persistence of PPP deviations, but, as in Murray and Papell (2002) , the confidence intervals are so wide that no strong conclusions are warranted on the existence of a PPP puzzle.