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Error Correction Exchange Rate Modeling Evidence for Mexico

  • Thomas M Fullerton Jr

    (University of Texas at El Paso)

  • Miwa Hattori

    (University of Texas)

  • Cuauhtemoc Calderon

    (Universidad Autonoma de Ciudad Juarez)

A set of error correction models are proposed for the nominal exchange rate between the Mexican peso and the United States dollar. The basic theoretical frameworks utilize balance of payment and monetary model constructs. Empirical estimation results are fairly weak for both specifications irrespective of the interst rate variable selected. Although dynamic simulation properties of the equations are acceptable, in no case do they generate levels of accuracy that exceed that associated with a simple random walk.

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Paper provided by EconWPA in its series International Finance with number 0406001.

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Length: 23 pages
Date of creation: 01 Jun 2004
Date of revision:
Handle: RePEc:wpa:wuwpif:0406001
Note: Type of Document - doc; pages: 23
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Thomas M Fullerton Jr & Eiichi Araki, 2004. "New Directions in Latin American Macroeconometrics," Development and Comp Systems 0408002, EconWPA.
  2. Thomas M. Fullerton, 1993. "Un modelo macroeconométrico para pronosticar la economía colombiana," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  3. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  4. Pierre Perron & Robert J. Shiller, 1984. "Testing the Random Walk Hypothesis: Power Versus Frequency of Observation," Cowles Foundation Discussion Papers 732, Cowles Foundation for Research in Economics, Yale University.
  5. Edward E. Leamer, 1982. "Let's Take the Con Out of Econometrics," UCLA Economics Working Papers 239, UCLA Department of Economics.
  6. Harald Reinton & Steven Ongena, 1999. "Out-of-sample forecasting performance of single equation monetary exchange rate models in Norwegian currency markets," Applied Financial Economics, Taylor & Francis Journals, vol. 9(6), pages 545-550.
  7. 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.
  8. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 148-66, February.
  9. Ronald MacDonald, 1995. "Long-Run Exchange Rate Modeling; A Survey of the Recent Evidence," IMF Working Papers 95/14, International Monetary Fund.
  10. Kim, Benjamin J. C. & Mo, Soowon, 1995. "Cointegration and the long-run forecast of exchange rates," Economics Letters, Elsevier, vol. 48(3-4), pages 353-359, June.
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  12. Obstfeld, Maurice, 1984. "Balance-of-Payments Crises and Devaluation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 208-17, May.
  13. Thomas M Fullerton Jr & Roberto Tinajero, 2004. "Short-Run Price Dynamics in Mexico," Macroeconomics 0407027, EconWPA.
  14. Su Zhou, 2001. "The Power of Cointegration Tests Versus Data Frequency and Time Spans," Southern Economic Journal, Southern Economic Association, vol. 67(4), pages 906-921, April.
  15. Peter Isard, 1987. "Lessons from Empirical Models of Exchange Rates (Enseignements tirés des modèles empiriques de comportement des taux de change) (Enseñanzas que nos brindan los modelos empíricos de tipos de cambio," IMF Staff Papers, Palgrave Macmillan, vol. 34(1), pages 1-28, March.
  16. Craig S. Hakkio & Mark Rush, 1990. "Cointegration: how short is the long run?," Research Working Paper 90-08, Federal Reserve Bank of Kansas City.
  17. McNown, Robert & Wallace, Myles S, 1994. "Cointegration Tests of the Monetary Exchange Rate Model for Three High-Inflation Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 396-411, August.
  18. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  19. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  20. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-71, December.
  21. Fritsche, Charmaine Pereira & Wallace, Myles, 1997. "Forecasting the exchange rate PPP versus a random walk," Economics Letters, Elsevier, vol. 54(1), pages 69-74, January.
  22. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
  23. Yung-Hsiang Ying & Yoonbai Kim, 2001. "An Empirical Analysis on Capital Flows: The Case of Korea and Mexico," Southern Economic Journal, Southern Economic Association, vol. 67(4), pages 954-968, April.
  24. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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