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The Long Swings Puzzle: What the Data Tell When Allowed to Speak Freely

In: Palgrave Handbook of Econometrics

Author

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  • Katarina Juselius

Abstract

The persistent movements away from long-run benchmark values in real exchange rates that are often observed in many real exchange rates during periods of currency float have been subject to much empirical and theoretical research without resolving the underlying puzzle. This chapter demonstrates how the cointegrated VAR approach of grouping together components of similar persistence can be used to uncover structures in the data that ultimately may help to explain theoretically the forces underlying such puzzling movements. The characterization of the data into components which are empirically I(0), I(1) and I(2) is shown to be a powerful organizing principle, allowing us to structure the data into long-run, medium-run, and short-run behavior. Its main advantage is the ability to associate persistent movements away from fundamental benchmark values in one variable/relation with similar persistent movements somewhere else in the economy.

Suggested Citation

  • Katarina Juselius, 2009. "The Long Swings Puzzle: What the Data Tell When Allowed to Speak Freely," Palgrave Macmillan Books, in: Terence C. Mills & Kerry Patterson (ed.), Palgrave Handbook of Econometrics, chapter 8, pages 349-384, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-24440-5_8
    DOI: 10.1057/9780230244405_8
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    Citations

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    Cited by:

    1. Johansen, Søren & Nielsen, Morten Ørregaard, 2018. "The cointegrated vector autoregressive model with general deterministic terms," Journal of Econometrics, Elsevier, vol. 202(2), pages 214-229.
    2. Katarina Juselius, 2017. "Using a Theory-Consistent CVAR Scenario to Test an Exchange Rate Model Based on Imperfect Knowledge," Econometrics, MDPI, vol. 5(3), pages 1-20, July.
    3. Katarina Juselius, 2009. "Time to reject the privileging of economic theory over empirical evidence? A Reply to Lawson (2009)," Discussion Papers 09-16, University of Copenhagen. Department of Economics.
    4. Ordóñez, Javier & Jusélius, Katarina, 2009. "Balassa-Samuelson and Wage, Price and Unemployment Dynamics in the Spanish Transition to EMU Membership," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-30.
    5. Giorgio Canarella & Stephen Miller & Stephen Pollard, 2012. "Unit Roots and Structural Change," Urban Studies, Urban Studies Journal Limited, vol. 49(4), pages 757-776, March.

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