Are there bubbles in the Sterling-dollar Exchange Rate? New evidence from Sequential ADF Tests
AbstractThere has been mixed evidence regarding the existence of rational bubbles in the foreign exchange markets. Standard unit root and cointegration tests are criticized for their low power to detect rational bubbles that periodically collapse. This paper introduces recently developed sequential unit root tests into the analysis of exchange rates bubbles. Our results show that explosiveness in the nominal Sterling-dollar exchange rates is fully explained by the relative prices of traded goods. --
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Bibliographic InfoPaper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2012/21.
Date of creation: 2012
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exchange rates; rational bubbles; sequential unit root test;
Find related papers by JEL classification:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- F3 - International Economics - - International Finance
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