| Title: | Quantifying the Uncertainty about the Half-Life of Deviations from PPP |
| Author: | Kilian, Lutz; Zha, Tao |
| Author Affiliation: | U MI; Federal Reserve Bank of Atlanta |
| Source: | Journal of Applied Econometrics, March-April 2002, v. 17, iss. 2, pp. 107-25 |
| Publication Date: | March-April 2002 |
| Abstract: | We propose a Bayesian framework in which the uncertainty about the half-life of deviations from purchasing power parity can be quantified. Based on the responses to a survey study, we propose a prior probability distribution for the half-life under the recent float intended to capture widely held views among economists. We derive the posterior probability distribution of the half-life under this consensus prior and confirm the presence of substantial uncertainty about the half-life. We provide for the first time a comprehensive formal evaluation of several nonnested hypotheses of economic interest, including Rogoff's (1996) claim that the half-life is contained in the range of 3 to 5 years. We find that no hypothesis receives strong support from the data. |
| Descriptors: | Foreign Exchange (Exchange Rates; Intervention; Foreign Exchange Reserves; Currency Crises) Model Construction and Estimation |
| ISSN: | 08837252 |
| Publication Type: | Journal Article |
| Availability: | http://www.interscience.wiley.com/jpages/0883-7252 |