Incorporating Relevant Multivariate Information for Characterizing Half-Life with an Application to Purchasing Power Parity

Half-lives are summary measures of persistence, and are usually characterized from
impulse response functions (IRFs) of univariate time series models. Two issues which
occur with half-life characterization in multivariate time series are IRFs become
conditional on specific shocks and are often also not uniquely identified. I introduce an
approach for characterizing the half-life in multivariate time series models which
circumvents both issues. An empirical application suggests the half-life of the real
exchange rate estimated from multivariate models is generally longer relative to
univariate models.