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Market efficiency, purchasing power parity and cointegration in Central American black foreing exchange markets

Listed author(s):
  • José Roberto López

    (Consejo Monetario Centroamericano)

Registered author(s):

    The assumption that black market exchange rates follow a random walk and /or are determined by the purchasing power parity conditions in comonly imposed in macreoconomic models. The results from standard tests of black market efficiency, under the weak form, are not conclusive withoutany ambiguity whenever they are applied to nonstationary time series. This paper compares then with the unambiguous results arising from the application of the theory of cointegration to the study of market efficiency and purchasing power parity in the black market exchange rates of Costa Rica, El Salvador and Guatemala.

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    File URL: http://estudioseconomicos.colmex.mx/archivo/EstudiosEconomicos1993/111-153.pdf
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    Article provided by El Colegio de México, Centro de Estudios Económicos in its journal Estudios Económicos.

    Volume (Year): 8 (1993)
    Issue (Month): 1 ()
    Pages: 111-153

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    Handle: RePEc:emx:esteco:v:8:y:1993:i:1:p:111-153
    Contact details of provider: Web page: http://www.colmex.mx/centros/cee/

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    1. Jacob A. Frenkel, 1983. "Exchange Rates and International Macroeconomics," NBER Books, National Bureau of Economic Research, Inc, number fren83-1, November.
    2. MacDonald, Ronald & Taylor, Mark P., 1989. "Foreign exchange market efficiency and cointegration : Some evidence from the recent float," Economics Letters, Elsevier, vol. 29(1), pages 63-68.
    3. Hendry, David F, 1986. "Econometric Modelling with Cointegrated Variables: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 201-212, August.
    4. Alexander Hoffmaister, 1992. "The Cost of Export Subsidies: Evidence from Costa Rica," IMF Staff Papers, Palgrave Macmillan, vol. 39(1), pages 148-174, March.
    5. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    6. Richard J Rogalski & Joseph D Vinso, 1977. "Price Level Variations as Predictors of Flexible Exchange Rates," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 8(1), pages 71-82, March.
    7. Park, Joon Y. & Phillips, Peter C.B., 1988. "Statistical Inference in Regressions with Integrated Processes: Part 1," Econometric Theory, Cambridge University Press, vol. 4(03), pages 468-497, December.
    8. Meese, Richard A & Singleton, Kenneth J, 1982. " On Unit Roots and the Empirical Modeling of Exchange Rates," Journal of Finance, American Finance Association, vol. 37(4), pages 1029-1035, September.
    9. Baillie, Richard T & Lippens, Robert E & McMahon, Patrick C, 1983. "Testing Rational Expectations and Efficiency in the Foreign Exchange Market," Econometrica, Econometric Society, vol. 51(3), pages 553-563, May.
    10. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    11. Gillet, Roland, 1991. "L'efficience informationnelle du marché boursier : aspects théoriques et empiriques," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1991005, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    12. Daniel, Betty C., 1986. "Empirical determinants of purchasing power parity deviations," Journal of International Economics, Elsevier, vol. 21(3-4), pages 313-326, November.
    13. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    14. Jacob A. Frenkel, 1983. "An Introduction to Exchange Rates and International Macroeconomics," NBER Chapters,in: Exchange Rates and International Macroeconomics, pages 1-18 National Bureau of Economic Research, Inc.
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