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Identifying Linear Restrictions On The Monetary Excange Rate Model And The Uncovered Interest Parity: Cointegration Evedence From The Canadian - U.S. Dollar

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  • George Kouretas

    ()
    (Department of Economics, University of Crete, Greece)

Abstract

In this paper, the long-run validity of the monetary model for the Canadian-U.S. dollar is reexamined. The time-series properties of the variables are examined with the use of nonseasonal and seasonal unit root and stationarity tests, and it is shown that they are I(1) processes with no seasonal effects. Two significant cointegration vectors are discovered using Johansen's methodology, but the system is found to be overidentified and, hence, the authors are unable to assign the monetary model with either vector. Parameter stability of Johansen's results is tested using the recursive methodology developed by H. Hansen and S. Johansen (1993).

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Bibliographic Info

Paper provided by University of Crete, Department of Economics in its series Working Papers with number 9511.

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Handle: RePEc:crt:wpaper:9511

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Cited by:
  1. Nejib Hachicha, 2003. "Capital Inflows-National Saving Dynamics in Tunisia: Evidence from Cointegration, Weak Exogeneity and Simultaneous Error Correction Modelling," International Economic Journal, Taylor & Francis Journals, vol. 17(4), pages 43-60.
  2. Lee, Chin & Law, Chee-Hong, 2013. "The Effects of Trade Openness on Malaysian Exchange Rate," MPRA Paper 45185, University Library of Munich, Germany.
  3. Adawo, Monday A. & Effiong, Ekpeno L., 2013. "Monetary exchange rate model as a long-run phenomenon: evidence from Nigeria," MPRA Paper 46407, University Library of Munich, Germany.
  4. Panayiotis Diamantis & Dimitris Georgoutsos & George Kouretas, 2001. "The Monetary Approach in the Presence of I(2) Components: A Cointegration Analysis of the Official and Black Market for Foreign Currency in Latin America," Working Papers 0108, University of Crete, Department of Economics.
  5. David O. Cushman, 2000. "The failure of the monetary exchange rate model for the Canadian-U.S. dollar," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 591-603, August.
  6. Diamandis, Panayiotis F. & Georgoutsos, Dimitris A. & Kouretas, Georgios P., 1998. "The Monetary Approach to the Exchange Rate: Long-Run Relationships, Identification and Temporal Stability," Journal of Macroeconomics, Elsevier, vol. 20(4), pages 741-766, October.
  7. Stephanos Papadamou & Thomas Markopoulos, 2012. "The Monetary Approach to the Exchange Rate Determination for a “Petrocurrency”: The Case of Norwegian Krone," International Advances in Economic Research, Springer, vol. 18(3), pages 299-314, August.

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