Abstract
A theory-consistent CVAR scenario describes a set of testable regularities capturing basic assumptions of the theoretical model. Using this concept, the paper considers a standard model for exchange rate determination and shows that all assumptions about the model's shock structure and steady-state behavior can be formulated as testable hypotheses on common stochastic trends and cointegration. While the scenario was rejected on essentially all counts, the results were informative about the cause of the empirical failure. It was the stationarity assumptions that were too restrictive to explain the long persistent swings in the real exchange rate and the interest rate differential.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
