Exchange rate and price dynamics under adaptive and rational expectations: an empirical analysis
Article Abstract:
The applicability of three exchange rate expectations in the foreign exchange markets is tested involving three measures of price levels in a structural or semi-structural open economy. Rational and adaptive expectations are superior over static expectations in an open, structural economy. The restrictions imposed by static expectations overwhelmingly reject it in favor of either adaptive or rational expectations. However, results also indicate that it is not possible to chose empirically between rational and adaptive expectations. Adaptive expectations are also found to be regressive.
Publication Name: Journal of International Money and Finance
Subject: Economics
ISSN: 0261-5606
Year: 1992
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Cointegration and exchange rate dynamics
Article Abstract:
A reduced cointegration model was developed to evaluate the long- and short-run relationships of macroeconomic frameworks. The proposed model, whose demand side follows Dornbush's rational expectation version of Mundall-Fleming model, serves as a high-linear combination of structural coefficients. Results confirm the existence of cointegration among exchange rate, prices, foreign output, interest rate and money supply. It further proves that cointegration is prevalent in long-run relationships of variables.
Publication Name: Journal of International Money and Finance
Subject: Economics
ISSN: 0261-5606
Year: 1997
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Can equilibrium models explain nominal exchange regime non-neutrality? Evidence from the European Monetary System
Article Abstract:
Alan Stockman's theory on real exchange rate variability was analyzed using information on real exchange prices after the formation of the European Monetary System (EMS). The theory posits that the real exchange rate variabilty is smaller under fixed rather than floating nominal exchange rate systems. Results indicate that the variability declined after the formation of the EMS using the HP filter but not when linearly detrended thus proving the validity of the theory.
Publication Name: Journal of International Money and Finance
Subject: Economics
ISSN: 0261-5606
Year: 1992
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