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Error Correction Exchange Rate Modeling Evidence for Mexico

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Author Info
Thomas M Fullerton Jr (University of Texas at El Paso)
Miwa Hattori (University of Texas)
Cuauhtemoc Calderon (Universidad Autonoma de Ciudad Juarez)

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Abstract

A set of error correction models are proposed for the nominal exchange rate between the Mexican peso and the United States dollar. The basic theoretical frameworks utilize balance of payment and monetary model constructs. Empirical estimation results are fairly weak for both specifications irrespective of the interst rate variable selected. Although dynamic simulation properties of the equations are acceptable, in no case do they generate levels of accuracy that exceed that associated with a simple random walk.

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Publisher Info
Paper provided by EconWPA in its series International Finance with number 0406001.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 23 pages
Date of creation: 01 Jun 2004
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Handle: RePEc:wpa:wuwpif:0406001

Note: Type of Document - doc; pages: 23
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Web page: http://129.3.20.41

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Related research
Keywords: Mexico; Error Correction Modeling; Nominal Exchange Rates;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange

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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.:
  1. Thomas M Fullerton Jr & Roberto Tinajero, 2004. "Short-Run Price Dynamics in Mexico," Macroeconomics 0407027, EconWPA. [Downloadable!]
  2. Kim, Benjamin J. C. & Mo, Soowon, 1995. "Cointegration and the long-run forecast of exchange rates," Economics Letters, Elsevier, vol. 48(3-4), pages 353-359, June. [Downloadable!] (restricted)
  3. Craig S. Hakkio & Mark Rush, 1990. "Cointegration: how short is the long run?," Research Working Paper 90-08, Federal Reserve Bank of Kansas City.
    Other versions:
  4. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December. [Downloadable!] (restricted)
  5. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February. [Downloadable!] (restricted)
  6. Yung-Hsiang Ying & Yoonbai Kim, 2001. "An Empirical Analysis on Capital Flows: The Case of Korea and Mexico," Southern Economic Journal, Southern Economic Association, vol. 67(4), pages 954-968, April.
  7. Maurice Obstfeld, 1984. "Balance-of-Payments Crises and Devaluation," NBER Working Papers 1103, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Pierre Perron & Robert J. Shiller, 1984. "Testing the Random Walk Hypothesis: Power Versus Frequency of Observation," Cowles Foundation Discussion Papers 732, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  9. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  10. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March. [Downloadable!] (restricted)
    Other versions:
  11. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May. [Downloadable!] (restricted)
  12. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June. [Downloadable!] (restricted)
  13. Fritsche, Charmaine Pereira & Wallace, Myles, 1997. "Forecasting the exchange rate PPP versus a random walk," Economics Letters, Elsevier, vol. 54(1), pages 69-74, January. [Downloadable!] (restricted)
  14. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 148-66, February. [Downloadable!] (restricted)
  15. Su Zhou, 2001. "The Power of Cointegration Tests Versus Data Frequency and Time Spans," Southern Economic Journal, Southern Economic Association, vol. 67(4), pages 906-921, April.
  16. Ronald MacDonald, 1995. "Long-Run Exchange Rate Modeling - A Survey of the Recent Evidence," IMF Working Papers 95/14, International Monetary Fund.
  17. Baillie, Richard T. & Selover, David D., 1987. "Cointegration and models of exchange rate determination," International Journal of Forecasting, Elsevier, vol. 3(1), pages 43-51. [Downloadable!] (restricted)
  18. Reinton, Harald & Ongena, Steven, 1999. "Out-of-Sample Forecasting Performance of Single Equation Monetary Exchange Rate Models in Norwegian Currency Markets," Applied Financial Economics, Taylor and Francis Journals, vol. 9(6), pages 545-50, December. [Downloadable!] (restricted)
  19. Edison, Hali J, 1991. "Forecast Performance of Exchange Rate Models Revisited," Applied Economics, Taylor and Francis Journals, vol. 23(1), pages 187-96, Part B, J.
  20. McNown, Robert & Wallace, Myles S, 1994. "Cointegration Tests of the Monetary Exchange Rate Model for Three High-Inflation Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 396-411, August. [Downloadable!] (restricted)
  21. Thomas M Fullerton Jr & Eiichi Araki, 2004. "New Directions in Latin American Macroeconometrics," Development and Comp Systems 0408002, EconWPA. [Downloadable!]
  22. Tawadros, George B, 2001. "The Predictive Power of the Monetary Model of Exchange Rate Determination," Applied Financial Economics, Taylor and Francis Journals, vol. 11(3), pages 279-86, June. [Downloadable!] (restricted)
  23. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-71, December. [Downloadable!] (restricted)
Full references

Cited by:
(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. Fullerton, Th. & Lopez, J.J., 2005. "Error Correction Exchange Rate Modeling for Mexico: 1980 – 2001," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 2(3), pages 17-30. [Downloadable!]
  2. Otavio De Medeiros, 2005. "Order Flow and Exchange Rate Dynamics in Brazil," Finance 0503019, EconWPA. [Downloadable!]
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