Half-lives of currencies and aggregation bias

Kunkler, M. and MacDonald, R. (2015) Half-lives of currencies and aggregation bias. Economics Letters, 135, pp. 58-60. (doi: 10.1016/j.econlet.2015.07.030)

Abstract

We revisit the exchange rate half-life issue and demonstrate that observed half-lives can be reduced significantly by modelling (relative) currency rates, rather than exchange rates. We show that the average observed half-life for relative currency rates, around a measure of central tendency, is about 1.55 years and this drops to 1.30 years when the US dollar is excluded. We also show that a standard exchange rate model exhibits aggregation bias.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: MacDonald, Professor Ronald
• Authors: Kunkler, M., and MacDonald, R.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Economics Letters
• ISSN: 0165-1765
• ISSN (Online): 1873-7374