Persistence in law of one price deviations: Evidence from micro-data

Crucini, Mario J.; Shintani, Mototsugu

doi:10.1016/j.jmoneco.2007.12.010

Cited by 198 publications

(188 citation statements)

References 43 publications

Supporting

Mentioning

170

Contrasting

Order By: Relevance

“…However, the median value of the GMM median unbiased estimates was still below 1 year, 0.94 year, when we correct for the bias. 26 Our estimates are roughly consistent with the average half-life estimates from the micro-data evidence by Crucini and Shintani (2008) 27 and the differences of the point estimates for different countries are very similar to those of Murray and Papell (2002) for most countries. 28 J-test accepts our model specification for all countries with an exception of the UK.…”

Section: Resultssupporting

confidence: 72%

“…While it is possible that the bias can solve the PPP puzzle under certain conditions, it is also possible that the bias is negligible under other conditions. For example, Chen and Engel (2005), Crucini and Shintani (2008), and Parsley and Wei (2007) have found negligible aggregation biases. Broda and Weinstein (2008) show that the aggregation bias of the form that Imbs, Mumtaz, Ravn, and Rey (2005) studied is small for their barcode data, even though the convergence coefficient rises as they move to aggregate indexes.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Purchasing Power Parity and the Taylor Rule

2013

View full text Add to dashboard Cite

In the Kehoe and Midrigan (2007) model, the persistence parameter of the real exchange rate is closely related to the measure of price stickiness in the Calvo-pricing model. When we employ this view, Rogoff's (1996) 3 to 5 year consensus half-life implies that firms update their prices every 18 to 30 quarters on average. This is at odds with most estimates from U.S. aggregate data when single equation methods are applied to the New Keynesian Phillips Curve (NKPC), or when system methods are applied to Dynamic Stochastic General Equilibrium (DSGE) models that include the NKPC. It is well known, however, that there is a large degree of uncertainty around the consensus half-life of the real exchange rate. To obtain a more efficient estimator, this paper develops a system method that combines the Taylor rule and a standard exchange rate model to estimate half-lives. We use a median unbiased estimator for the system method with nonparametric bootstrap confidence intervals, and compare the results with those from the single equation method typically used in the literature. Applying the method to the real exchange rates of 18 developed countries against the U.S. dollar, we find that most of the half-life estimates from the single equation method fall in the range of 3 to 5 years with wide confidence intervals that extend to positive infinity. In contrast, the system method yields median-unbiased estimates that are typically shorter than one year with much sharper 95% confidence intervals, most of which range from 3 quarters to 5 years. These median unbiased estimates and the lower bound of the confidence intervals for the half-lives of real exchange rates are consistent with most estimates of price stickiness using aggregate U.S. data for the NKPC and DSGE models.

show abstract

Section: Resultssupporting

confidence: 72%

Section: Introductionmentioning

confidence: 99%

Purchasing Power Parity and the Taylor Rule

2013

View full text Add to dashboard Cite

show abstract

“…This high duration was described by Rogoff himself to be among one of the six major puzzles in international economics and has sparked a large body of literature. A number of studies have also shown that aggregation bias in both the time and product dimensions may help to reconcile this high duration of the adjustment process with faster convergence at the product and sectoral levels (Imbs et al, 2005;Crucini and Shintani, 2008;Bergin et al, 2013). The writings of Kilian and Zha (2002), Murray and Papell (2002), and Rossi (2005) have however questioned the existence of the puzzle given the large estimation uncertainty that emerges using both Bayesian and classical techniques.…”

Section: Atheoretical Benchmarksmentioning

confidence: 99%

Exchange rate forecasting with DSGE models

Zorzi

Kolasa

Rubaszek

2017

Journal of International Economics

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe run a real exchange rate forecasting "horse race", which highlights that two principles hold. First, forecasts should not replicate the high volatility of exchange rates observed in sample. Second, models should exploit the mean reversion of the real exchange rate over long horizons. Abiding by these principles, an open-economy DSGE model performs well in real exchange rate forecasting. However, it fails to forecast nominal exchange rates better than the random walk. We find that the root cause is its inability to predict domestic and foreign inflation. This shortcoming leads us toward simpler ways to outperform the random walk. Non-technical summaryEconomic theory provides policymakers with clear guidance on how the competitiveness channel operates in the aftermath of a wide set of disturbances, such as monetary, productivity, risk premium or foreign shocks. However, there is a cloud hanging over this aspect of international economics, namely that these conjectures may have limited empirical significance, given the systematic failure of macro models to beat even the naïve random walk (RW) in exchange rate forecasting (the "exchange rate disconnect puzzle"). The question then naturally arises of whether international macro models are rich enough to be meaningful. Layers of complexity are typically added to improve their realism. For example, including in the features of the model the currency of trade invoicing may help the model to capture better the degree of exchange rate pass-through. Similarly, distinguishing the currency of denomination of asset and liabilities, may lead to a better description of the dynamics of external debt, which may be essential to better understand real exchange rate movements in emerging countries. On the other hand, imposing too many restrictions on the data generating process, either theoretically or in the estimation phase, may prove disadvantageous from a pure forecasting perspective given the higher number of estimated parameters. Every cloud has a silver lining, however. The exchange rate disconnect puzzle has spurred economists to look for new directions of research with success. Openeconomy dynamic stochastic general equilibrium (DSGE) models are clearly a major accomplishment from the theoretical perspective. The empirical literature has also shown why, by properly accounting for estimation error, exchange rate models may be better than we usually think. The consen...

show abstract

“…As is evident in Table 5, the dispersion in price levels across locations is on the order of one-fourth to one-…fth as large as the mean level of dispersion at the level of individual goods and services. 9 Two obvious sources of variation that would average out across goods are measurement error and trade costs. Classical measurement error is, by de…nition, independently distributed across goods.…”

Section: Variance Decomposition Of Price Levelsmentioning

confidence: 99%

Understanding long-run price dispersion

Crucini

Yilmazkuday

2014

Journal of Monetary Economics

Self Cite

View full text Add to dashboard Cite

A unique panel of retail prices spanning 123 cities in 79 countries from 1990 to 2005 is used to uncover the novel properties of long-run international price dispersion. At the PPP level, almost all of price dispersion is attributed to unskilled wage dispersion. At the level of individual goods and services, the average contribution of these wages is signi…cantly reduced, re ‡ecting that good-speci…c sources of price dispersion, such as trade costs and good-speci…c markups, tend to average out across goods. At the LOP level, borders and distance contribute about equally to price dispersion that is rising in the distribution share.

show abstract

Persistence in law of one price deviations: Evidence from micro-data

Cited by 198 publications

References 43 publications

Purchasing Power Parity and the Taylor Rule

Purchasing Power Parity and the Taylor Rule

Exchange rate forecasting with DSGE models

Understanding long-run price dispersion

Contact Info

Product

Resources

About