This paper employs a new methodology for measuring the contribution of growth and interest rate differentials to the half-life of deviations from Purchasing Power Parity (PPP). Our method is based on directly comparing the impulse response function of a VAR model, where the real exchange rate is...

We propose a new methodology for decomposing the persistence of deviations from purchasing power parity (PPP). By directly comparing the impulse response function (IRF) of a vector autoregressive (VAR) model, where the real exchange rate is Granger caused by a set of candidate variables, with...