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Review of Quantitative Finance and Accounting

, Volume 52, Issue 2, pp 643–656 | Cite as

Semi-parametric real exchange rates dynamics

  • Angelos KanasEmail author
  • Angelos Kotios
  • Panagiotis D. Zervopoulos
Original Research
  • 51 Downloads

Abstract

A flexible semi-parametric augmented Dickey Fuller (ADF) regression is proposed to explore real exchange rate dynamics for 16 countries over the twentieth century, and to estimate half-lives. Departing from existing literature, the present approach does not impose a functional form of the ADF regression and encompasses parametric extensions. Significant impediments to real exchange rates adjustment are found, and estimated half-lives are longer than those reported by earlier studies. These findings reveal a dismal PPP performance, difficulties in designing profitable strategies based on mean-reversion, complexities in production relocation policies by firms to reduce exchange rate risk, and carry implications for foreign subsidiary ownership structure.

Keywords

Real exchange rates Semi-parametric Half-lives Simulations 

JEL Classification

F31 F41 

Notes

Acknowledgements

We wish to sincerely thank an anonymous referee and the Editor of this Journal for their important comments and suggestions which significantly improved the paper.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  • Angelos Kanas
    • 1
    Email author
  • Angelos Kotios
    • 2
  • Panagiotis D. Zervopoulos
    • 3
  1. 1.Department of EconomicsUniversity of PiraeusPiraeusGreece
  2. 2.Department of International and European StudiesUniversity of PiraeusPiraeusGreece
  3. 3.Department of ManagementUniversity of SharjahSharjahUnited Arab Emirates

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