Maximum likelihood estimation of cointegration in exchange rate models for seven inflationary OECD countries
Article Abstract:
The Johansen maximum likelihood method was used to look for cointegration between the variables of a monetary exchange rate model applied to the inflationary economies of Greece, Italy, Iceland, New Zealand, Spain, Turkey and Portugal. The model was modified to account for real exchange rate fluctuations while bootstrapping was employed to adjust the results. The latter indicated that the pure monetary model is inadequate to characterize the presence of one or two cointegrating vectors and the actual relationships between the different variables.
Publication Name: Journal of International Money and Finance
Subject: Economics
ISSN: 0261-5606
Year: 1996
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Interest rate parity and foreign exchange risk premia in the ERM
Article Abstract:
The uncovered interest rate parity (UIP) in the European Exchange Rate Mechanism (ERM) is examined. Specifically, the presence of UIP in the interest rate differentials are considered through tests of market efficiency and zero risk premia in an international general asset pricing environment. The results, which show moderate to low risk premia between ERM currencies, indicate that the UIP is a 'reasonable approximation' of the linkage between the exchange rates and interest rates in the ERM.
Publication Name: Journal of International Money and Finance
Subject: Economics
ISSN: 0261-5606
Year: 1996
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A reexamination of the uncovered interest rate parity hypothesis
Article Abstract:
Conditions for the validity of the uncovered interest rate parity (UIP) theory are investigated. Specifically, the autoregressive conditional heteroskedasticity in exchange rate data is considered to modify the UIP theory. The standard hypothesis, which is valid only when 'conditional variances are deterministic,' is adjusted so that the future spot exchange rate is equal to the domestic-foreign spread or forward exchange rate multiplied by a term premium.
Publication Name: Journal of International Money and Finance
Subject: Economics
ISSN: 0261-5606
Year: 1996
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