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Are there bubbles in the Sterling-dollar exchange rate? New evidence from sequential ADF tests

  • Bettendorf, Timo
  • Chen, Wenjuan

There has been mixed evidence regarding the existence of rational bubbles in the foreign exchange markets. This paper introduces recently developed sequential unit root tests into the analysis of exchange rates bubbles. We find strong evidence of explosive behavior in the nominal Sterling-dollar exchange rate. However, this explosive behavior should not be simply interpreted as evidence of rational bubbles, as we show that it might be driven by the relative prices of traded goods.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 120 (2013)
Issue (Month): 2 ()
Pages: 350-353

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Handle: RePEc:eee:ecolet:v:120:y:2013:i:2:p:350-353
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Nael Al-Anaswah & Bernd Wilfling, 2009. "Identification of speculative bubbles using state-space models with Markov-switching," CQE Working Papers 0309, Center for Quantitative Economics (CQE), University of Muenster.
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