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Estimation and Hypothesis Testing with Restricted Spectral Density Matrices: An Application to Uncovered Interest Parity

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  • Danny Quah
  • Takatoshi Ito

Abstract

This paper explores an econometric estimation technique for dynamic linear models. The method combines the analytics of moving average solutions to dynamic models together with computational advantages of the Whittle likelihood. A hypothesis of interest to international and financial economists is represented in the form of cross-equation restrictions and tested under the technique. This paper employs data on Japanese yen- and U.S. dollar-denominated interest rates and yen/dollar exchange rates to examine the hypothesis of uncovered interest parity under rational expectations.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0050.

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Date of creation: Sep 1989
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Publication status: published as "Hypothesis Testing with Restricted Spectral Density Matrices, with an Application to Uncovered Interest Parity" From International Economic Review, Vol. 30, No. 1, pp. 203-215, (February 1989).
Handle: RePEc:nbr:nberte:0050

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