Exchange rate equilibrium and fundamentals in Asia-Pacific countries
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This paper provides new findings that extend the literature by investigating the time to equilibrium for price changes to catch up with exchange rate and the contribution of non-parity fundamentals in exchange-rate dynamics in a trade-related multi-country framework. It reports new findings on exchange behaviour by expanding the parity variables to include other theory-suggested variables with high and low-frequency multi-country panel regression analysis, and Divisia Index Model. Our findings indicate that exchange rates are affected by growth rates, capital and balance of-payment flows, fiscal, monetary and other fundamentals. This study also confirms that long-run PPP equilibrium for a group of Asia Pacific countries is five years. These key findings are robust across different time intervals.
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