Template-type: ReDIF-Paper 1.0
Author-Name: Pablo Astorga
Author-Workplace-Name: Latin American Centre, St. Antony's College, Oxford and Instituto Figuerola
Universidad Carlos III, Marid, Spain.
Title: Mean Reversion in Long-Horizon Real Exchange Rates: Evidence from Latin America
Abstract: This paper analyses stability in real multilateral exchange rates in six leading Latin-American 
economies during the XXth century using a new data set. A univariate approach is complemented by an 
error-correction model including key fundamentals. Unit-root testing shows a very slow process of mean 
reversion – if any – in the series in levels; however, mean reversion is found after allowing for trends and 
structural breaks with half-life values ranges from 0.8 to 2.5 years. We also found reversion to a conditional 
mean defined by the co-integrating relationship, and that the equilibrium path is largely explained by 
fundamentals - especially terms of trade and trade openness. Exchange rate policy proved to have only a 
transitory effect in generating real depreciation.
Classification-JEL: F41, N16, O11
Keywords: Real Exchange Rates, Purchasing Power Parity, Economic Development, Latin America
Length: 32 pages
Creation-Date: 2010-01-01
Number: _080
File-URL: http://www.economics.ox.ac.uk/materials/papers/4236/astorga80.pdf
File-Format: application/pdf
Handle: RePEc:nuf:esohwp:_080