ARDL Approach to the Exchange Rate Overshooting in Taiwan
This paper re-examines Dornbusch’s (1976) sticky-price monetary model to exchange rate determination by employing both conventional Johansen’s (1988, 1990, 1994) maximum likelihood cointegration test and the ARDL Bound test by Pesaran, Shin, and Smith (2001) for the monthly data of Taiwan over the period 1986:01 ∼ 2003:04. Ambiguous results are found for the long-run equilibrium relationship between the NTD/USD exchange rate and macro fundamentals. With the advantage that ARDL Bound test incorporates both I(1) and I(0) series, we conclude our empirical evidence that there is no long-run equilibrium relationship between exchange rates and macro fundamentals. Moreover, for the short-run dynamic response, the result from the ARDL-UECM-MAIC (1, 10, 10, 8, 10) setting supports the overshooting of currency depreciation as pre-described by Dornbusch (1976). However, this overshooting phenomenon does not exist the current month, but one month after. Copyright Springer Science+Business Media, Inc. 2005
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 25 (2005)
Issue (Month): 1 (August)
|Contact details of provider:|| Web page: http://springerlink.metapress.com/link.asp?id=102990|
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.:
- Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-73.
- Lutz Kilian & Mark P. Taylor, 2001.
"Why Is It So Difficult to Beat the Random Walk Forecast of Exchange Rates?,"
464, Research Seminar in International Economics, University of Michigan.
- Kilian, Lutz & Taylor, Mark P., 2003. "Why is it so difficult to beat the random walk forecast of exchange rates?," Journal of International Economics, Elsevier, vol. 60(1), pages 85-107, May.
- Lutz Kilian & Mark P. Taylor, 2001. "Why is it so difficult to beat the Random Walk Forecast of Exchange Rates?," Tinbergen Institute Discussion Papers 01-031/4, Tinbergen Institute.
- Kilian, Lutz & Taylor, Mark P, 2001. "Why is it so Difficult to Beat the Random Walk Forecast of Exchange Rates?," CEPR Discussion Papers 3024, C.E.P.R. Discussion Papers.
- Kilian, Lutz & Taylor, Mark P., 2001. "Why is it so difficult to beat the random walk forecast of exchange rates?," Working Paper Series 0088, European Central Bank.
- Bentzen, Jan & Engsted, Tom, 2001.
"A revival of the autoregressive distributed lag model in estimating energy demand relationships,"
Elsevier, vol. 26(1), pages 45-55.
- Bentzen, J. & Engsted, T., 1999. "A Revival of the Autoregressive Distributed Lag Model in Estimating Energy Demand Relationships," Papers 99-7, Aarhus School of Business - Department of Economics.
- Tuck Cheong Tang & Mahendhiran Nair, 2002. "A cointegration analysis of Malaysian import demand function: reassessment from the bounds test," Applied Economics Letters, Taylor & Francis Journals, vol. 9(5), pages 293-296.
- Frenkel, Jacob A, 1976. " A Monetary Approach to the Exchange Rate: Doctrinal Aspects and Empirical Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 200-224.
- Atkins, Frank J. & Coe, Patrick J., 2002. "An ARDL bounds test of the long-run Fisher effect in the United States and Canada," Journal of Macroeconomics, Elsevier, vol. 24(2), pages 255-266, June.
- Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
- Arulampalam, W. & Robin A. Naylor & Jeremy P. Smith, 2002. "University of Warwick," Royal Economic Society Annual Conference 2002 9, Royal Economic Society.
- Bahmani-Oskooee, Mohsen & Kara, Orhan, 2000. "Exchange rate overshooting in Turkey," Economics Letters, Elsevier, vol. 68(1), pages 89-93, July.
- Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-22, September.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992.
"Efficient Tests for an Autoregressive Unit Root,"
NBER Technical Working Papers
0130, National Bureau of Economic Research, Inc.
- Kisu Simwaka, 2004. "Monetary Model of exchange rate: empirical evidence from Malawi," Macroeconomics 0407019, EconWPA.
- Driskill, Robert, 1981. "Exchange rate overshooting, the trade balance, and rational expectations," Journal of International Economics, Elsevier, vol. 11(3), pages 361-377, August.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Taylor, Mark P. & Peel, David A., 2000. "Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 33-53, February.
- Subrata Ghatak & Jalal Siddiki, 2001. "The use of the ARDL approach in estimating virtual exchange rates in India," Journal of Applied Statistics, Taylor & Francis Journals, vol. 28(5), pages 573-583.
- Andrew Abbott & Adrian Darnell & Lynne Evans, 2001. "The influence of exchange rate variability on UK exports," Applied Economics Letters, Taylor & Francis Journals, vol. 8(1), pages 47-49.
- M. Hashem Pesaran & Yongcheol Shin, 2002.
"Long-Run Structural Modelling,"
Taylor & Francis Journals, vol. 21(1), pages 49-87.
- Pesaran,H.M. & Shin,Y., 1995. "Long-Run Structural Modelling," Cambridge Working Papers in Economics 9419, Faculty of Economics, University of Cambridge.
- Mohammad Hashem Pesaran & Yongcheol Shin, 1999. "Long-Run Structural Modelling," ESE Discussion Papers 44, Edinburgh School of Economics, University of Edinburgh.
- Costas Karfakis, 2003. "Exchange rate determination during hyperinflation: the case of the Romanian lei," Applied Financial Economics, Taylor & Francis Journals, vol. 13(6), pages 473-476.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Ilan Goldfajn & Poonam Gupta, 2001.
"Overshootings and Reversals: The Role of Monetary Policy,"
Working Papers Central Bank of Chile
126, Central Bank of Chile.
- Ilan Goldfajn & Poonam Gupta, 2002. "Overshootings and Reversals: The Role of Monetary Policy," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 9, pages 279-302 Central Bank of Chile.
- Charalambos Pattichis & Mona Kanaan, 2004. "The Balassa-Samuelson Hypothesis and Oil Price Shocks in a Small Open Economy: Evidence from Cyprus," Open Economies Review, Springer, vol. 15(1), pages 45-56, January.
- Levin, Jay H, 1999. "Exchange Rate Undershooting," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(4), pages 325-33, October.
- Mohsen Bahmani-Oskooee & Raymond Chi Wing Ng, 2002. "Long-Run Demand for Money in Hong Kong: An Application of the ARDL Model," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(2), pages 147-155, August.
- Rapach, David E. & Wohar, Mark E., 2004. "Testing the monetary model of exchange rate determination: a closer look at panels," Journal of International Money and Finance, Elsevier, vol. 23(6), pages 867-895, October.
- Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Swarna Dutt & Dipak Ghosh, 2000. "An empirical note on the monetary exchange rate model," Applied Economics Letters, Taylor & Francis Journals, vol. 7(10), pages 669-671.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- repec:crs:wpaper:9645 is not listed on IDEAS
- Tatsuyoshi Miyakoshi, 2000. "The monetary approach to the exchange rate: empirical observations from Korea," Applied Economics Letters, Taylor & Francis Journals, vol. 7(12), pages 791-794.
- M. Bahmani-Oskooee & Gour Goswami, 2003. "A disaggregated approach to test the J-Curve phenomenon: Japan versus her major trading partners," Journal of Economics and Finance, Springer, vol. 27(1), pages 102-113, March.
- Nieh, Chien-Chung & Lee, Cheng-Few, 2001. "Dynamic relationship between stock prices and exchange rates for G-7 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(4), pages 477-490.
- Rapach, David E. & Wohar, Mark E., 2002. "Testing the monetary model of exchange rate determination: new evidence from a century of data," Journal of International Economics, Elsevier, vol. 58(2), pages 359-385, December.
When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:25:y:2005:i:1:p:55-71. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.