Testing for Sunspot in the Foreign Exchange Market
It has been shown that the nonfundamental uncertainty called sunspots matters in many areas of the economy. Noting the fact that nationwide capital movement and the speculative demand for foreign currencies are rapidly increasing, this paper conducts empirical tests on the sunspot exchange rate model. The empirical result shows that the sunspot equilibrium exchange rate deviating from Purchasing Power Parity (PPP) and Interest Rate Parity (IRP) is consistent with the real data. More importantly, the Generalized Method of Moments (GMM) over-identification test is shown to support the evidence that more general Euler equations are in favor of our sunspot equilibrium exchange rate model. [C52, E44]
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): 16 (2002)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RIEJ20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RIEJ20|
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.:
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 15(2), pages 145-161, March.
- R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
- Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
- Neil Wallace, 1990. "Why markets in foreign exchange are different from other markets," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 12-18.
- Hodrick, Robert J., 1989. "Risk, uncertainty, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 433-459, May.
- Robert J. Hodrick, 1987. "Risk, Uncertainty and Exchange Rates," NBER Working Papers 2429, National Bureau of Economic Research, Inc.
- King, Robert G. & Wallace, Neil & Weber, Warren E., 1992. "Nonfundamental uncertainty and exchange rates," Journal of International Economics, Elsevier, vol. 32(1-2), pages 83-108, February.
- Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
- Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1996. "Relative Labour Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," CEPR Discussion Papers 1464, C.E.P.R. Discussion Papers.
- Matthew B. Canzoneri & Robert E. Cumby & Behzad Diba, 1996. "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," NBER Working Papers 5676, National Bureau of Economic Research, Inc.
- Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
- Imrohoroglu, Selahattin, 1993. "Testing for sunspot equilibria in the German hyperinflation," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 289-317.
- Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
- Knetter, Michael M, 1993. "International Comparisons of Price-to-Market Behavior," American Economic Review, American Economic Association, vol. 83(3), pages 473-486, June.
- Miron, Jeffrey A, 1986. "Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1258-1279, December.
- Jeffrey A. Miron, 1986. "Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption," NBER Working Papers 1845, National Bureau of Economic Research, Inc.
- Ghysels, Eric & Hall, Alastair, 1990. "Are consumption-based intertemporal capital asset pricing models structural?," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 121-139.
- Ferson, Wayne E & Harvey, Campbell R, 1992. " Seasonality and Consumption-Based Asset Pricing," Journal of Finance, American Finance Association, vol. 47(2), pages 511-552, June.
- Manuelli, Rodolfo E & Peck, James, 1990. "Exchange Rate Volatility in an Equilibrium Asset Pricing Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 559-574, August.
- Mark, Nelson C., 1985. "On time varying risk premia in the foreign exchange market: An econometric analysis," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 3-18, July.
- Hamilton, James D. & Whiteman, Charles H., 1985. "The observable implications of self-fulfilling expectations," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 353-373, November.
- Rotemberg, Julio J, 1984. "Interpreting the Statistical Failures of Some Rational Expectations Macroeconomic Models," American Economic Review, American Economic Association, vol. 74(2), pages 188-193, May.
- Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-1286, September. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:16:y:2002:i:3:p:39-58. 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: (Michael McNulty)
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.