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Excess Volatility and Speculative Bubbles in the Canadian Dollar: Real of Imagined?

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Author Info
Murray, J.
Van Norden, S.
Vigfusson, R.

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Abstract

Greater intervention by the public sector is often proposed as a solution to the increased speculation and excessive price volatility through to characterize today's competitive world financial system. However, before any ambitious policy responses can be contemplated, the question whether asset prices are in fact subject to excess volatility needs to be answered. This paper tries to answer the question by using the Canadian dollar as representative asset and testing for excess volatility and speculative bubbles. In the main, the empirical sections of the paper provide little support for the execess volatility argument and the subsequent need for government intervention

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File URL: http://www.bankofcanada.ca/en/res/tr/1996/tr76.pdf
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Publisher Info
Paper provided by Bank of Canada in its series Technical Reports with number 76.

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Length: 43 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:bca:bocatr:76

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Related research
Keywords: PRICES; FINANCIAL MARKET;

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Baillie, Richard T & Bollerslev, Tim, 1989. "The Message in Daily Exchange Rates: A Conditional-Variance Tale," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 297-305, July.
    Other versions:
  2. Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September. [Downloadable!] (restricted)
  3. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
    Other versions:
  4. Robert Lafrance & Simon van Norden, 1995. "Exchange rate fundamentals and the Canadian dollar," Bank of Canada Review, Bank of Canada, vol. 1995(Spring), pages 17-33. [Downloadable!]
  5. Mark P. Taylor & Ronald MacDonald, 1991. "Exchange Rate Economics: A Survey," IMF Working Papers 91/62, International Monetary Fund.
  6. Engel, Charles, 1993. "Real exchange rates and relative prices : An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 35-50, August. [Downloadable!] (restricted)
    Other versions:
  7. Froot, Kenneth A. & Kim, Michael & Rogoff, Kenneth, 1995. "The Law of One Price Over 700 Years," Working Papers 95-13, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  8. De Grauwe, Paul, 1994. "Exchange Rates in Search of Fundamental Variables," CEPR Discussion Papers 1073, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  10. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February. [Downloadable!] (restricted)
  11. Goodhart, Charles, 1988. "The Foreign Exchange Market: A Random Walk with a Dragging Anchor," Economica, London School of Economics and Political Science, vol. 55(220), pages 437-60, November. [Downloadable!] (restricted)
  12. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche 9423, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  13. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August. [Downloadable!] (restricted)
    Other versions:
  14. Kenneth A. Froot & Kenneth Rogoff, 1996. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
  16. David Backus, 1984. "Empirical Models of the Exchange Rate: Separating the Wheat from the Chaff," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 824-46, November. [Downloadable!] (restricted)
    Other versions:
  17. Engel, Charles, 1994. "Can the Markov switching model forecast exchange rates?," Journal of International Economics, Elsevier, vol. 36(1-2), pages 151-165, February. [Downloadable!] (restricted)
    Other versions:
  18. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, vol. 60(4), pages 953-66, July. [Downloadable!] (restricted)
    Other versions:
  19. Huizinga, John, 1987. "An empirical investigation of the long-run behavior of real exchange rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 27(1), pages 149-214, January. [Downloadable!] (restricted)
  20. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August. [Downloadable!] (restricted)
  21. Jeff Gable & Simon van Norden & Robert Vigfusson, . "Analytical Derivatives for Markov Switching Models," Working Papers 95-7, Bank of Canada. [Downloadable!]
    Other versions:
  22. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  23. Vigfusson, Robert, 1997. "Switching between Chartists and Fundamentalists: A Markov Regime-Switching Approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(4), pages 291-305, October. [Downloadable!] (restricted)
    Other versions:
  24. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178. [Downloadable!] (restricted)
    Other versions:
  25. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July. [Downloadable!] (restricted)
  26. Hansen, B.E., 1990. "A Powerful, Simple Test For Cointegration Using Cochrane- Orcutt," RCER Working Papers 230, University of Rochester - Center for Economic Research (RCER).
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Neil, Beattie & Fillion, Jean-François, 1999. "An Intraday Analysis of the Effectiveness of Foreign Exchange Intervention," Working Papers 99-4, Bank of Canada. [Downloadable!]
  2. Binyam Solomon, 2003. "Defence Specific Inflation: A Canadian Perspective," Defence and Peace Economics, Taylor and Francis Journals, vol. 14(1), pages 19-36, February. [Downloadable!] (restricted)
  3. Sven Arndt, 2002. "The Pros and Cons of North American Monetary Integration," Claremont Colleges Working Papers 2002-09, Claremont Colleges. [Downloadable!]
    Other versions:
  4. Laidler, David, 1999. "The Exchange Rate Regime and Canada's Monetary Order," Working Papers 99-7, Bank of Canada. [Downloadable!]
  5. corrinne ho & robert n mccauley, 2004. "Living with flexible exchange rates:," International Finance 0411003, EconWPA. [Downloadable!]
  6. Murray, John & Mark Zelmer & Zahir Antia, 2000. "International Financial Crises and Flexible Exchange Rates: Some Policy Lessons from Canada," Technical Reports 88, Bank of Canada. [Downloadable!]
  7. David Laidler, 1999. "Canada's Exchange Rate Options," Canadian Public Policy, University of Toronto Press, vol. 25(3), pages 324-332, September. [Downloadable!] (restricted)
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