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Yin-Wong Cheung, Menzie D. Chinn, Eiji Fujii
NBER Working Paper No. 7408*
Issued in October 1999
NBER Program(s): IFM
---- Abstract -----
We examine the relationship between market structure and the persistence of U.S. dollar-based sectoral real exchange rates for fourteen OECD countries. Our empirical results based on disaggregated data suggest that differences in market structure significantly determine the rates at which deviations from sectoral purchasing power parity decay. Specifically, industries with a larger price-cost margin are found to exhibit slower parity reversion of their sectoral real exchange rates. Further, as the degree of intra-industry trade activity increases, sectoral real exchange rate persistence becomes more pronounced. These findings imply that an imperfectly competitive market structure contributes to the well-documented persistence in real exchange rates.
*Published: Published as "Mean Reversion in Real Exchange Rates", EL, Vol. 46, no. 3(1994): 251-256. Published as "Economic Growth and Stationarity of Real Exchange Rates: Evidence from Some Fast-Growing Asian Countries", PBFJ, Vol. 6, nos. 1/2
(May 1998): 61- Published as "On Cross-Country Differences in the Persistence of Real Exchange Rates", Journal of International Economics, Vol. 47, no. 2 (April 1999): 1103-1125.
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