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.
Download (200kB) | Preview
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|
|Original Title:||Monetary exchange rate model: supportive evidence from nonlinear testing procedures|
|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
|Depositing User:||Venus Khim-Sen Liew|
|Date Deposited:||22. Feb 2008 06:39|
|Last Modified:||19. Feb 2013 04:04|
Anoruo, Emmanuel, Venus Khim-Sen Liew and Uchenna Elike (2006) “Nonlinear Real Exchange Rate Behavior: Are the African Currencies Exceptional,” International Research Journal of Finance Economics 1, 97 – 110.
Baharumshah, Ahmad Zubaidi, Abdul Mansur M. Masih and M. Azali (2002) “The Stock Market and Ringgit Exchange Rate: A Note,” Japan and the World Economy 458, 1 – 16.
Baharumshah, Ahmad Zubaidi and Venus Khim-Sen Liew (2005) “Forecasting Performance of Exponential Smooth Transition Autoregressive Exchange Rate Models,” Open Economies Review, 17, 261 – 277.
Bahmani-Oskooee, Mohsen (2002) “Does Black Market Exchange Rate Volatility Deter the Trade Flows? Iranian Experience,” Applied Economics 34, 2249 – 2255.
Bahmani-Oskooee, Mohsen and Abera Gelan (2006) "Testing the PPP in the Non-linear STAR Framework: Evidence from Africa." Economics Bulletin, 6(17), 1 – 15.
Baum, Christopher F., John T. Barkoulas and Mustafa Caglayan (2001) “Non-linear Adjustment to Purcahsing Power Parity in the Post-Bretton Woods Era,” Journal of International Money and Finance 20, 379 – 399.
Caner, Mehmet and Bruce E. Hansen (2001) “Threshold Autoregression with a Unit Root,” Econometrica 69, 1555 – 1596.
Cheung, Yin-Wong, Menzie David Chinn and Antonio Garcia Pascual (2005) “Empirical Exchange Rate Models of the Nineties: Are They Fit to Survive?” Journal of International Money and Finance 24, 1150 – 1175.
Chinn, Menzie David (2001) "Menu Costs and Nonlinear Reversion to Purchasing Power Parity among Developed Countries," UCSC Dept. of Economics Working Paper No. 498.
Chortareas, G. and George Kapetanios (2003) “The yen-real exchange Rates may be stationary after all: Evidence from Nonlinear Unit Root Test,” Working Paper No. 484, Department of Economics, Queen Mary, University of London.
Dumas, Bernard (1992) “Dynamic Equilibrium and the Real Exchange Rate in a Spatially Seperated World,” Review of Financial Studies 5, 153–180.
Engle, Robert F. and Cliff W. J. Granger (1987) “Cointegration and Error Correction Representation, Estimation, and Testing,” Econometrica 55, 251 – 276.
Francis, Brian and Sunday Iyare (2006) "Do Exchange rates in Caribbean and Latin American Countries Exhibit Nonlinearities?" Economics Bulletin, 6 (14), 1 – 20.
Granger, Clive W. J. and Timo Teräsvirta (1993) Modelling Non-linear Economic Relationships. London: Oxford University Press.
Kapetanios, George, Yongcheol Shin and Andy Snell (2003a) “Testing Unit Root in the Nonlinear STAR Framework,” Journal of Econometrics 112, 359 – 379.
Kapetanios, George, Yongcheol Shin and Andy Snell (2003b) “Testing for Cointegration in Nonlinear STAR Error Correction Models,” Working Paper, Queen Mary, University of London.
Lee, Chin and M. Azali (2005) “Exchange Rate Misalignments in ASEAN-5 Countries,” Labuan Bulletin of International Business and Finance 3, 11 – 28.
Lee, Chin, M. Azali, Zulkornain B. Yusop and Mohammed B. Yusoff (2008) “Is Malaysia Exchange Rate Misaligned Before The 1997 Crisis?” Labuan Bulletin of International Business and Finance, forthcoming.
Liew, Venus Khim-Sen, Chong T. Tai-Leung and Lim Kian-Ping (2003) “Inadequacy of Linear Autoregressive Model for Real Exchange Rates: Empirical Evidence from Asian Economies,” Applied Economics 35, 1387 – 1392.
Liew, Venus Khim-Sen., Ahmad Zubaidi Baharumshah and Chong T. Tai-Leung (2004) “Are Asian real exchange rate stationary?” Economics Letters 83, 313 – 316.
Luukkonen, Ritva, Pentti Saikkonen and Timo Teräsvirta (1988) “Testing Linearity against Smooth Transition Autoregressive Models,” Biometrika 75, 491 – 499.
Lyons, Richard K. (2002) "Foreign Exchange: Macro Puzzles, micro Tools," Economic Review, Federal Reserve Bank of San Francisco, 51 – 69.
Mark, Nelson C and Donggyu Sul (2001) “Nominal Exchange Rates and Monetary Funamentals: Evidence from a Small Post-Bretton Woods Panel,” Journal of International Economics 53, 29 – 52.
Michael, Panos, A. Robert Nobay and David A. Peel (1997) “Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation,” Journal of Political Economy 105(4), 933-948.
Papell, David H. and Joseph D. Alba (1998) “Exchange Rate Determination and Inflations in Southeast Asian Countries,” Journal of Development Economics 55, 421-437.
Rapach, David E. and Mark E. Wohar (2002) “Testing the Monetary Model of Exchange Rate Determination: New Evidence from a Century Data,” Journal of International Economics, 58, 359 – 385.
Sarno, Lucio (2000) “Real Exchange Rate Behaviour in the Middle East: A Re-examination,” Economics Letters 66, 127–136.
Taylor, Alan M. and Mark P. Taylor (2004) “The Purchasing Power Parity Debate,” Journal of Economic Perspectives 18, 135 – 158.
Taylor, Mark P. David A. Peel (2000) “Non-linear Adjustment, Long-run Equilibrium and Exchange Rate Fundamentals,” Journal of International Money and Finance 19, 33 – 53.
Taylor, Mark P., David A. Peel and Lucio Sarno (2001) “Nonlinear Mean-reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles,” International Economic Review 42, 1015 – 1042.
Teräsvirta, Timo (1994) “Specification, Estimation, and Evaluation of Smooth Transition Autoregressive Models,” Journal of American Statistics Association 89(425), 208–218.