Granger Causality from Exchange Rates to Fundamentals: What Does the Bootstrap Test Show Us?
AbstractWe use a residual-based bootstrap method to re-examine the finding of the Granger causality relationship from exchange rates to fundamentals in Engel and West (Exchange rate and fundamentals, Journal of Political Economy 2005, 113 (3), 485–517), in which the evidence for the relation is taken as evidence for the present-value model for exchange rates. The test results are against the previous findings. The Monte Carlo experiment results suggest that the causality test implemented in the previous study tends to spuriously reject null hypotheses. Thus, the existing evidence for the present value model for exchange rates is not robust.
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Bibliographic InfoPaper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 577.
Length: 24 pages
Date of creation: Feb 2013
Date of revision:
Contact details of provider:
Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.
Bootstrap; Granger causality; exchange rates; fundamentals;
Find related papers by JEL classification:
- F30 - International Economics - - International Finance - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-09 (All new papers)
- NEP-CBA-2013-03-09 (Central Banking)
- NEP-ECM-2013-03-09 (Econometrics)
- NEP-EXP-2013-03-09 (Experimental Economics)
- NEP-MON-2013-03-09 (Monetary Economics)
- NEP-OPM-2013-03-09 (Open Economy Macroeconomic)
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