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Exchange rate adjustment and output in Greece and Cyprus: evidence from panel data

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  • Kamal Upadhyaya
  • Franklin Mixon
  • Rabindra Bhandari

Abstract

This paper studies the effect of currency depreciation in Greece and Cyprus using panel data from 1969 to 1998. An empirical model, which includes monetary as well as fiscal variables in addition to exchange rates, is developed. Two versions of this model, one with the real exchange rate and another with the nominal exchange rate and foreign-to-domestic price ratio are estimated. Before estimating the model the time series properties of the data are diagnosed using unit root and cointegration tests. The estimated results suggest that the exchange rate depreciation is expansionary in the short run. In the medium and long run it is neutral to the economy.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 16 ()
Pages: 1181-1185

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Handle: RePEc:taf:apfiec:v:14:y:2004:i:16:p:1181-1185

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  1. Breusch, Trevor S & Wickens, Michael R, 1987. "Dynamic Specification, the Long Run and the Estimation of Transformed Regression Models," CEPR Discussion Papers 154, C.E.P.R. Discussion Papers.
  2. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  3. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  4. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  5. Upadhyaya, Kamal P. & Dhakal, Dharmendra & Mixon, Franklin G., 2000. "Exchange Rate Adjustment and Output in Selected Latin American Countries," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 53(1), pages 107-117.
  6. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
  7. Gylfason, Thorvaldur & Risager, Ole, 1984. "Does devaluation improve the current account?," European Economic Review, Elsevier, vol. 25(1), pages 37-64, June.
  8. Thorvaldur Gylfason & Michael Schmid, 1983. "Does Devaluation Cause Stagflation?," Canadian Journal of Economics, Canadian Economics Association, vol. 16(4), pages 641-54, November.
  9. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  10. Kamal Upadhyaya & Mukti Upadhyay, 1999. "Output effects of devaluation: Evidence from Asia," Journal of Development Studies, Taylor & Francis Journals, vol. 35(6), pages 89-103.
  11. P. Krugman & L. Taylor, 1976. "Contractionary Effects of Devaluations," Working papers 191, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Yu Hsing, 2006. "Responses of output in Poland to shocks to the exchange rate, the stock price, and other macroeconomic variables: a VAR model," Applied Economics Letters, Taylor & Francis Journals, vol. 13(15), pages 1017-1022.

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