Parity reversion in the Asian real exchange rates: new evidence from the local-persistent model

This article investigates the time-series properties of 13 Asian real exchange rates (RERs) vis-à-vis the US dollar. The half-life point estimates drawn from the local-persistent model are all less than 2 years, with a finite upper bound. There is no evidence to indicate that the Asian financial crisis has altered the speed of the purchasing power parity (PPP) adjustments. We find that the persistence of RERs over the last three decades remains unchanged in majority of the cases. Given the fairly rapid speed of adjustments and their corresponding confidence intervals, we conclude that the PPP puzzle does not exist in these countries.