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Exchange rate regimes and international output co-movement

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  • Tony Caporale
  • Chulho Jung

Abstract

Utlizing Johansen's (1988) multivariate cointegration testing procedure, we find a cointegrating vector between the outputs of five major industrialized nations for the fixed exchange rate period. However, this relationship breaks down for the flexible exchange rate era. We argue that the breakdown of monetary policy coordination caused by the abandonment of the fixed exchange rates explains the weakening of the international character of business cycles.

Suggested Citation

  • Tony Caporale & Chulho Jung, 1998. "Exchange rate regimes and international output co-movement," Applied Economics Letters, Taylor & Francis Journals, vol. 5(3), pages 165-168.
    • Handle: RePEc:taf:apeclt:v:5:y:1998:i:3:p:165-168
    DOI: 10.1080/758521375
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    References listed on IDEAS

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    1. Stockman, Alan C, 1980. "A Theory of Exchange Rate Determination," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 673-698, August.
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    3. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    7. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    8. Bonser-Neal, Catherine, 1990. "Monetary regime changes and the behavior of ex ante real interest rates: a multi-country study : A multi-country study," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 329-359, December.
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