본문 바로가기 주메뉴 바로가기
kiep logo

Contents

Citation

Citation
No Title

Article View

East Asian Economic Review Vol. 15, No. 3, 2011. pp.129-161.

DOI http://dx.doi.org/10.11644/KIEP.JEAI.2011.15.3.236

Number of citation : 0

View
610

Download
231

PDF PPT Twitter Facebook

Abstract

The purpose of this paper is to test the purchasing power parity (PPP) hypothesis using the won-dollar real exchange rate and analyze the effect of the decomposition into tradables and non-tradables on the change of the won-dollar real exchange rate. This paper decomposes the CPI-based real exchange rate into two parts according to Engel (1999); one is the relative price of traded goods between the countries, the other is a component that is a weighted difference of the relative price of nontraded-to traded-goods prices in each country. We construct this by comparing the component subsection weights in CPI. The empirical analysis of this paper consists of two parts as follows. First, we conducted a traditional time series analyses of the real exchange rate, tradable and non-tradable parts respectively, thereby testing the PPP hypothesis and other important hypotheses. Secondly, this paper conducted a Mean Squared Error (MSE) analysis to evaluate the relative contribution of tradable and non-tradable parts to the change of real exchange rate. From the time series analysis, it is not guaranteed that the PPP hyThe purpose of this paper is to test the purchasing power parity (PPP) hypothesis using the won-dollar real exchange rate and analyze the effect of the decomposition into tradables and non-tradables on the change of the won-dollar real exchange rate. This paper decomposes the CPI-based real exchange rate into two parts according to Engel (1999); one is the relative price of traded goods between the countries, the other is a component that is a weighted difference of the relative price of nontraded-to traded-goods prices in each country. We construct this by comparing the component subsection weights in CPI. The empirical analysis of this paper consists of two parts as follows. First, we conducted a traditional time series analyses of the real exchange rate, tradable and non-tradable parts respectively, thereby testing the PPP hypothesis and other important hypotheses. Secondly, this paper conducted a Mean Squared Error (MSE) analysis to evaluate the relative contribution of tradable and non-tradable parts to the change of real exchange rate. From the time series analysis, it is not guaranteed that the PPP hypothesis hold in the long run. The Balassa-Samuelson hypothesis is not either, since the sample size is too small to avoid the ‘power problem.’ In addition, the result of the Mean Squared Error analyses show that tradable goods are more important in explaining the won-dollar real exchange rate dynamics than that of the non-tradable goods. All in all, the results of this empirical analysis are in contrast with the explanation that if the long-run PPP hypothesis does not hold, it is mainly caused by the transaction cost and the non-tradable goods.

JEL classification: F31, F41

Keywords

PPP-Hypothesis, PPP-Puzzle, CPI, Tradable, Non-tradable

Language

Korean

References

  1. 박대근. 1995. 「원-달러환율의 장기구매력평가로부터의 이탈에 대한 실증분석」. 「국제경제연구」, 제1권 제1호. 한국국제경제학회.
  2. 박수남,김영재. 2007. 「한국과 미국간 국제평가관계분석」. 「무역학회지」, 제 32권 제3호. 한국무역학회.
  3. 이윤복. 2000. 「장기구매력평가의 공적분검정-비교약재의 충격-」. 「한일경상논집」, 제19권. 한일경상학회.
  4. 이환호,윤경석. 2008. 「근원소비자물가지수를 이용한 구매력평가설의 재검토」. 「국제경제연구」, 제14권 제2호. 한국국제경제학회.
  5. 이현재. 2006.「비교역재와 구매력평가에 의한 원화환율의 적정성 검정」. 「국제지역연구」, 제10권 제2호. 국제지역학회.
  6. Chen, Shiu-Sheng and Charles Engel. 2005. "Doed ‘Aggregation Bias’ Explain PPP puzzle?" Pacific Economic Review, 10:1, pp. 49-72. CrossRef
  7. Engel, Charles. 1999. "Accounting for U.S. Real Exchange Rate Changes." journal of Political Economy, Vol. 107, pp. 507-538. CrossRef
  8. Engel, Charles. 2000. "Long-run PPP May Not Hold after all." journal of International Economics, 57, pp. 243-273. CrossRef
  9. Engel, Charles and Kenneth D. West. 2004. "Accounting for Exchange-Rate Variability in Present-Value Models When the Discount Factor is Near 1." The American Economic Review, Vol. 94, No. 2, pp. 119-125. CrossRef
  10. Imbs, J., Mumtaz, H, Ravn, M. and Rey, H. 2005. "PPP Strikes Back, Aggregation and the Real Exchange Rate." Quarterly journal of Economics, vol. 120 (Feb.), pp. 1-44. CrossRef
  11. Johansen, S. 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models." Econometrica, 59, pp. 1551-1580. CrossRef
  12. Kilian, Lutz and Tao, Zha. 2002. "Quantifying the Uncertainty about the Half-Life of Deviations from PPP." journal of Applied Economics, Vol. 17, pp. 107-125. CrossRef
  13. Office, Lawrence H. 1986. "The Law of One Price cannot be Rejected, Two Tests Based on the Tradable/Nontradable Price Ration." journal of Macroeconomics, 8, 2, pp. 159-182.
  14. Parsley, David and Shang-Jin, Wei. 2007. "A Prism into the PPP Puzzles, The Micro-Foundations of Big Mac Real Exchange Rates." The Economic journal, 117 (Oct.), pp. 1336-1356. CrossRef
  15. Rogers, J. H. and M. Jekins. 1995. "Haircuts or Hysteresis? Sources of Movements in Real Exchange Rates." journal of International Economics, Vol. 8, pp. 339-360. CrossRef
  16. Rogoff, K. 1996. "The Purchasing Power Parity Puzzle." journal of Economic Literature, Vol. 34, pp. 647-668.
  17. Taylor, A. 2001. "Potential Pitfalls for the PPP Puzzle? Sampling and Specification Biases in Mean-reversion Tests of the Law of One Price." Econometrica, Vol. 69, pp. 473-498. CrossRef
  18. Taylor, M. 1988. "An Empirical Examination of Long-run Power Parity Using Cointegration Techniques." Applied Economics, 20, pp. 1369-1381. CrossRef
  19. Taylor, M. 2006. "Real exchange rates and Purchasing Power Parity: Meanreversion in Economic Thought." Applied Financial Economics, 16, pp. 1-17. CrossRef
  20. Xu, Z. 2003. "Purchasing Power Parity, Price Indices, and Exchange Rate Forecasts." journal of International Money and Finance, Vol. 22, pp. 105-130 CrossRef