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Exchange rate cointegration across central bank regime shifts

  • Jose A. Lopez

Foreign exchange rates are examined using cointegration tests over various time periods linked to regime shifts in central bank behavior. The number of cointegrating vectors seems to vary across these regime changes within the foreign exchange market. For example, cointegration is not generally found prior to the Plaza Agreement of September 22, 1985, but it is present after that date. The significance of these changes is evaluated using a likelihood ratio procedure proposed by Quintos (1993). The changing nature of the cointegrating relationships indicate that certain aspects of central bank activity do have long-term effects on exchange rates.

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Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9602.

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Date of creation: 1996
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Publication status: Published in Research in Finance, v. 22 (2005) pp. 327-256
Handle: RePEc:fip:fednrp:9602
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  10. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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