On cross-country differences in the persistence of real exchange rates

Previous findings of long-run purchasing power parity come mainly from data for industrial countries, raising the issue of whether the results suffer sample-selection bias and exaggerate the general relevance of parity revers ion. This study uncovers substantial cross-country heterogeneity in the per sistence of deviations from parity. The results show that it is more likely , rather than less likely, to find parity reversion for developing countrie s than industrial countries. Although some persistence variations may partl y reflect country differences in structural characteristics such as inflati on experience and government spending, a considerable portion of those vari ations seems unaccounted for. (C) 2000 Elsevier Science B.V. All rights res erved. JEL classification: F31; F41.