Are real exchanges rate series really persistent?: evidence from three commonwealth of independent states countries

Abstract

This article sets out to examine the degree of persistence in the real exchange rates of Kazakhstan, Kyrgyzstan and Russia, and tests the validity of Purchasing power parity (PPP) using monthly data covering 1995: 01-2013: 12 period. The sum of autoregressive (AR) coefficients is used in order to examine persistence of the real exchange rate series and grid-bootstrap method is employed for the confidence intervals. The tests performed suggest two results: (1) Covering the full sample and sub-sample periods, excluding Kyrgyzstan in 1995: 01-1998: 07 and Russia in 2008: 09-2013: 12 periods, disregarding the structural breaks in the data generating process, there is high persistency in real exchange rates; (2) there is evidence in support of PPP covering the full sample for every country except for Kyrgyzstan in 1995: 01-1998: 07 and Russia in 2008: 09-2013: 12 periods.