Monetary exchange rate model: supportive evidence from nonlinear testing procedures

Liew, Venus Khim-Sen and Baharumshah, Ahmad Zubaidi and Habibullah, Muzafar Shah and Midi, Habshah (2008): Monetary exchange rate model: supportive evidence from nonlinear testing procedures.

Abstract

Using nonlinear testing procedures relevant to the recent literature, this study provides evidence of nonlinear adjustment of nominal exchange rate towards monetary fundamentals in the context of ASEAN-5 countries. While it supports earlier findings supportive of monetary exchange rate model in this region using the linear testing procedures, this study provides insightful information in explaining why persistent misalignments between nominal exchange rate and monetary fundamentals are often observed in the sample data.

• Item Type: MPRA Paper
• Language: English
• Keywords: monetary model; exchange rate; nonlinear; unit root test; linearity test; STAR model
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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