The (Un-) Stable Relationship between The Exchange rate and its Fundamentals
This study investigates the relationship between the euro-dollar exchange rate and its underlying fundamentals by adopting non-linear time series modelling. We found that this relationship is episodically unstable. We also found that an equilibrium-distorting shock is likely to have a greater effect on the exchange rate during periods when the deviation between exchange rate and fundamentals is large; as a consequence, when the exchange rate is close to its equilibrium value it tends to be less sensitive to any shocks in the fundamentals.
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- 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.
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- 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.
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- Michael, Panos & Nobay, A Robert & Peel, David A, 1997.
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Journal of Political Economy,
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- Tom Doan, . "RATS programs to replicate Michael-Nobay-Peel ESTAR models," Statistical Software Components RTZ00113, Boston College Department of Economics.
- Sarno, Lucio, 2000. "Real exchange rate behavior in the Middle East: a re-examination," Economics Letters, Elsevier, vol. 66(2), pages 127-136, February.
- Sarantis, Nicholas, 1999. "Modeling non-linearities in real effective exchange rates," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 27-45, January.
- Mark P. Taylor, 2005. "Official Foreign Exchange Intervention As A Coordinating Signal In The Dollar-Yen Market," Pacific Economic Review, Wiley Blackwell, vol. 10(1), pages 73-82, 02.
- Baillie, Richard T. & Selover, David D., 1987. "Cointegration and models of exchange rate determination," International Journal of Forecasting, Elsevier, vol. 3(1), pages 43-51.
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