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Are there bubbles in exchange rates? Some new evidence from G10 and emerging market economies

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  • Hu, Yang
  • Oxley, Les

Abstract

The existence, or otherwise, of bubbles has become a topical issue in economics and finance, particularly following the Global Financial Crisis. Using the generalized sup ADF (GSADF), unit root tests of Phillips et al. (2015a, PSY) we investigate evidence for exchange rate bubbles in some G10, Asian and BRICS countries from Mar.1991-Dec.2014. We conclude that the US$-Mexican Peso crisis of 1994–95 was a bubble. Of particular interest to financial market trading, is that newly emerging countries, with relatively shallow financial markets, may be more likely to exhibit bubbly behavior in foreign exchange markets than more mature G10 countries.

Suggested Citation

  • Hu, Yang & Oxley, Les, 2017. "Are there bubbles in exchange rates? Some new evidence from G10 and emerging market economies," Economic Modelling, Elsevier, vol. 64(C), pages 419-442.
  • Handle: RePEc:eee:ecmode:v:64:y:2017:i:c:p:419-442
    DOI: 10.1016/j.econmod.2017.02.022
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ye Chen & Peter C.B. Phillips & Shuping Shi, 2020. "Common Bubble Detection in Large Dimensional Financial Systems," Cowles Foundation Discussion Papers 2251, Cowles Foundation for Research in Economics, Yale University.
    2. Kruse, Robinson & Kaufmann, Hendrik & Wegener, Christoph, 2018. "Bias-corrected estimation for speculative bubbles in stock prices," Economic Modelling, Elsevier, vol. 73(C), pages 354-364.
    3. Daan Steenkamp, 2017. "How bubbly is the New Zealand dollar?," Reserve Bank of New Zealand Discussion Paper Series DP2017/03, Reserve Bank of New Zealand.
    4. Steenkamp, Daan, 2018. "Explosiveness in G11 currencies," Economic Modelling, Elsevier, vol. 68(C), pages 388-408.
    5. Gomis-Porqueras, Pedro & Shi, Shuping & Tan, David, 2020. "Gold as a Financial Instrument," MPRA Paper 102782, University Library of Munich, Germany.
    6. Assaf, Ata, 2018. "Testing for bubbles in the art markets: An empirical investigation," Economic Modelling, Elsevier, vol. 68(C), pages 340-355.

    More about this item

    Keywords

    Bubbles; Rational bubbles; GSADF test; G10 countries; Emerging markets & BRICS countries;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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