Ca' Zorzi, Michele; Muck, Jakub; Rubaszek, Michał - European Central Bank - 2013
This paper brings three new insights into the Purchasing Power Parity (PPP) debate. First, we show that a half-life PPP model is able to forecast real exchange rates (RER) better than the random walk (RW) model at both short and long-term horizons. Secondly, we find that this result holds only...