Time to equilibrium in exchange rates: G-10 and Eastern European economies

Catherine S F Ho, M. Ariff

Research output: Contribution to journalArticleResearchpeer-review

4 Citations (Scopus)

Abstract

This paper reports different times-to-equilibrium for G-10 developed economies and the Eastern European emerging economies. By applying a novel method of value-weighted index to highly-trade-linked economies, we test the purchasing power parity to the full length of time-to-equilibrium. The times-to-equilibrium obtained are: 6. years for developed and 2. years for emerging economies. These results are consistent with the sticky price hypothesis: economies trading in highly aggregated capital goods take longer time to reach price equilibrium in the face of overshooting exchange rates: the opposite is true for primary exporters. This finding is new for these two groups, and could be compared usefully with the earlier reports of long half-life for developed countries. Also, our method of measurement establishes the actual time of the theory prediction on price-to-currency relationship. It is possible to apply this methodology to study more groups of countries.

Original languageEnglish
Pages (from-to)94-107
Number of pages14
JournalGlobal Finance Journal
Volume23
Issue number2
DOIs
Publication statusPublished - 2012

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Exchange rates
Emerging economies
Equilibrium price
Methodology
Half-life
Purchasing power parity
Sticky prices
Currency
Developed countries
Prediction
Exporters
Overshooting

Cite this

Ho, Catherine S F ; Ariff, M. / Time to equilibrium in exchange rates : G-10 and Eastern European economies. In: Global Finance Journal. 2012 ; Vol. 23, No. 2. pp. 94-107.
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Time to equilibrium in exchange rates : G-10 and Eastern European economies. / Ho, Catherine S F; Ariff, M.

In: Global Finance Journal, Vol. 23, No. 2, 2012, p. 94-107.

Research output: Contribution to journalArticleResearchpeer-review

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