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|Title: ||Two essays on real exchange rate movements|
|Other Titles: ||Guan yu zhen shi hui lü bian dong de yan jiu|
|Authors: ||Lin, Jianjing (林劍菁)|
|Department: ||Department of Economics and Finance|
|Degree: ||Master of Philosophy|
|Issue Date: ||2010|
|Publisher: ||City University of Hong Kong|
|Subjects: ||Purchasing power parity -- Econometric models.|
Foreign exchange rates -- Econometric models.
Purchasing power parity -- OECD countries -- Econometric models.
Foreign exchange rates -- OECD countries -- Econometric models.
|Notes: ||CityU Call Number: HG3823 .L56 2010|
i, 94 leaves 30 cm.
Thesis (M.Phil.)--City University of Hong Kong, 2010.
Includes bibliographical references (leaves 57-62)
|Abstract: ||This thesis explores the PPP for tradable goods at the sectoral level for
OECD countries and identifies whether the failure of PPP for traded goods is
responsible for the weak correlation between the overall real exchange rate and
the relative prices of nontraded-goods (Betts and Kehoe, 2008). In addition, we
investigate the comovement of real exchange rate and the relative price of
non-traded goods by using various cointegration techniques. The study involves
19 sectors in 12 OECD countries over the period from 1980 through 2005.
PPP for tradables is first tested following the classification in a paper by De
Gregorio et al (1994). Further, the tradability of a sector is determined in a more
precise way - based on how much the volume of sectoral trade is accounting for
the total amount of trade - and then PPP is examined according to this new
classification. Finally, according to the new classification, an implicit price index
is constructed for examining PPP at the aggregated level.
I first test the long-run equilibrium relationship between the domestic price
of traded goods and the foreign price of traded goods measured in the domestic
currency by the conintegration test. More than one third of results suggest that
both price series are cointegrated, but the hypothesis of the unit cointegrating
vector is rejected in most of the cases. Secondly, the unit cointegrating vector is
imposed so that it’s the stationarity of the real exchange rate for tradables being tested in the sectoral level. There are less than one fifth of the sectors in which
the unit root hypothesis is able to be rejected. In order to increase the power of
the test, I further apply various panel unit root tests which provide stronger
evidence of the stationarity of the real exchange rate. Finally, in order to examine
the anomaly proposed by Betts and Kehoe (2008), I divide the country sample
into two groups: one belongs to EU and the other does not, and make comparison
of the results between two groups. I am unable to find significant evidence of the
anomaly in the more disaggregated data. The results based on the new
classification are more or less the same as those on the conventional
classification. Nevertheless, in the aggregated level, the evidence is less
supportive. One possible reason may come from the aggregation bias, which
induces a positive bias in persistence estimate.
Taking account of the empirical validity detected, it's possible to investigate
the long-run comovement of the real exchange rate and the relative price of
non-traded goods. Instead of the variance approach, the cointegration test is
employed to investigate the long-run evolution of the real exchange rate. The
results suggest that there exists a long-run relationship between the real exchange
rate and the relative price of the non-traded goods.|
|Online Catalog Link: ||http://lib.cityu.edu.hk/record=b3947564|
|Appears in Collections:||EF - Master of Philosophy |
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