2013
DOI: 10.1016/j.jempfin.2013.03.001
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Equilibrium exchange rate determination and multiple structural changes

Abstract: ). We would like to thank Karim Abadir for his helpful comments and suggestions. AbstractThe large appreciation and depreciation of the US dollar in the 1980s stimulated an important debate on the usefulness of unit root tests in the presence of structural breaks. In this paper, we propose a simple model to describe the evolution of the real exchange rate. We then propose a more general smooth transition (STR) function than has hitherto been employed, which is able to capture structural changes along the (long… Show more

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Cited by 5 publications
(3 citation statements)
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“…The long-run PPP between Canada and the US displays mixed experimental evidence (Crowder, 1996;Campbell & Lapham, 2001;Rao et al, 2004;Anderson et al, 2003). The PPP theory continues hold the attention of researchers due to its effects both on theoretical exchange rate determination frameworks (Cerrato et al, 2013) as well as for practical comparative exchange rate policy-making models (Engel et al, 2012). By employing a fractionally integrated process the Engle-Granger two step method of cointegration permits divergence from equilibrium.…”
Section: Contribution To Current Literaturementioning
confidence: 99%
“…The long-run PPP between Canada and the US displays mixed experimental evidence (Crowder, 1996;Campbell & Lapham, 2001;Rao et al, 2004;Anderson et al, 2003). The PPP theory continues hold the attention of researchers due to its effects both on theoretical exchange rate determination frameworks (Cerrato et al, 2013) as well as for practical comparative exchange rate policy-making models (Engel et al, 2012). By employing a fractionally integrated process the Engle-Granger two step method of cointegration permits divergence from equilibrium.…”
Section: Contribution To Current Literaturementioning
confidence: 99%
“…The speed at which the function moves between 1 and 1 changes with . As discussed in Cerrato et al (2010), this model is able to capture structural changes taking place in di¤erent regimes. If c 1 < c 2 , 0 < S t ( ) < 1 when t = c 1 T , and 1 < S t ( ) < 0 when t = c 2 T .…”
Section: A Structural Change Modelmentioning
confidence: 99%
“…The interest in PPP rests on its practical application to comparative exchange rate policy-making models (Engel et al, 2012. ) and theoretical exchange rate determination frameworks (Cerrato et al, 2013). In most cases, empirical findings on the validity of PPP depends on the variant of PPP used -absolute PPP (aPPP) or relative PPP (rPPP).…”
Section: Introductionmentioning
confidence: 99%