Incorporating relevant multivariate information for characterizing half-life with an application to purchasing power parity

Vol: 
47/2017
Author name: 
Wong B
Year: 
2017
Month: 
July
Abstract: 

Half-lives are summary measures of persistence, and are usually characterized from impulse response functions (IRFs) of univariate time series models. Two issues which occur with half-life characterization in multivariate time series are IRFs become conditional on specific shocks and are often also not uniquely identified. I introduce an approach for characterizing the half-life in multivariate time series models which circumvents both issues. An empirical application suggests the half-life of the real exchange rate estimated from multivariate models is generally longer relative to univariate models.

Publication file: 

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