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Exchange rate cointegration across central bank regime shifts

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  • Jose A. Lopez

Abstract

Foreign exchange rates are examined using cointegration tests over various time periods linked to regime shifts in central bank behavior. The number of cointegrating vectors seems to vary across these regime changes within the foreign exchange market. For example, cointegration is not generally found prior to the Plaza Agreement of September 22, 1985, but it is present after that date. The significance of these changes is evaluated using a likelihood ratio procedure proposed by Quintos (1993). The changing nature of the cointegrating relationships indicate that certain aspects of central bank activity do have long-term effects on exchange rates.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9602.

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Date of creation: 1996
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Publication status: Published in Research in Finance, v. 22 (2005) pp. 327-256
Handle: RePEc:fip:fednrp:9602

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Keywords: Banks and banking; Central ; Cointegration ; Foreign exchange rates;

References

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  15. Kathryn Dominguez & Jeffrey A. Frankel, 1990. "Does Foreign Exchange Intervention Work?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 16.
  16. Baillie, Richard T & Bollerslev, Tim, 1989. " Common Stochastic Trends in a System of Exchange Rates," Journal of Finance, American Finance Association, vol. 44(1), pages 167-81, March.
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Cited by:
  1. St├ęphane GOUTTE & Benteng Zou, 2011. "Foreign exchange rates under Markov Regime switching model," CREA Discussion Paper Series 11-16, Center for Research in Economic Analysis, University of Luxembourg.
  2. Darbha, Gangadhar & Patel, Urjit R., 2004. "Nonlinear Adjustment in Real Exchange Rates and Long Run Purchasing Power Parity--Further Evidence," Working Papers 04-1, University of Pennsylvania, Wharton School, Weiss Center.
  3. Barkoulas, John & Baum, Christopher F. & Chakraborty, Atreya, 2003. "Forward premiums and market efficiency: Panel unit-root evidence from the term structure of forward premiums," Journal of Macroeconomics, Elsevier, vol. 25(1), pages 109-122, March.
  4. Marcelo Dabos & V. Hugo Juan- Ramon, 1998. "Real Exchange Rate Response to Capital Flows in Mexico: An Empirical Analysis," Working Papers 21, Universidad de San Andres, Departamento de Economia, revised Dec 1999.
  5. St├ęphane Goutte & Benteng Zou, 2012. "Continuous time regime switching model applied to foreign exchange rate," Working Papers hal-00643900, HAL.

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