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Exchange rate cointegration across central bank regime shifts

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Jose A. Lopez

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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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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 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.:

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  2. 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.
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  6. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November. [Downloadable!] (restricted)
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  10. Hakkio, Craig S. & Rush, Mark, 1989. "Market efficiency and cointegration: an application to the sterling and deutschemark exchange markets," Journal of International Money and Finance, Elsevier, vol. 8(1), pages 75-88, March. [Downloadable!] (restricted)
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  13. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
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(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. Marcelo Dabós & V. Hugo Juan- Ramón, 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. [Downloadable!]
  2. John T. Barkoulas & Christopher F. Baum & Atreya Chakraborty, 2000. "Forward Premiums and Market Efficiency: Panel Unit-root Evidence from the Term Structure of Forward Premiums," Boston College Working Papers in Economics 461, Boston College Department of Economics, revised 13 Jun 2001. [Downloadable!]
    Other versions:
  3. 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. [Downloadable!]
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