Testing the Canonical Model of Exchange Rates with Unobservable Fundamentals
AbstractIn this paper, the authors test the asset market approach or canonical model of exchange rates. They treat exchange rate fundamentals as unobservable. The empirical results do not reject the canonical model and, therefore, the embedded rational expectations assumption, in sharp contrast with previous empirical evidence. The authors also find evidence of feedback from the exchange rate to fundamentals, which is normally omitted in the theoretical literature. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 38 (1997)
Issue (Month): 2 (May)
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- Marcus J. Chambers & J. Roderick McCrorie, 2006. "Identification And Estimation Of Exchange Rate Models With Unobservable Fundamentals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 573-582, 05.
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