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Cointegrated Periodically Collapsing Bubbles in the Exchange Rate of “BRICS”

Author

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  • Wilfredo L. Maldonado
  • Octavio A. F. Tourinho
  • Jorge A. B. M. de Abreu

Abstract

We test the occurrence of periodically recurring rational bubbles in the exchange rate of each of the “BRICS” countries currency relative to the US dollar. The forward exchange rate is used as a proxy for the expected exchange rate, different Purchasing Parity Power (PPP)-based rules for the fundamental exchange rate are considered, and its initial value is endogenously determined. For the chosen model, the regime switching equation satisfactorily fits the data, confirming the presence of rational bubbles for all countries. The dynamics of the exchange rate series for each country is interpreted with the help of the estimated bubbles. The bubbles are compared across countries, found to be cointegrated, and this is interpreted as evidence of the international transmission of exchange rate shocks between these countries.

Suggested Citation

  • Wilfredo L. Maldonado & Octavio A. F. Tourinho & Jorge A. B. M. de Abreu, 2018. "Cointegrated Periodically Collapsing Bubbles in the Exchange Rate of “BRICS”," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(1), pages 54-70, January.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:1:p:54-70
    DOI: 10.1080/1540496X.2016.1229179
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    Cited by:

    1. Gomez-Gonzalez, Jose Eduardo & Sanin-Restrepo, Sebastian, 2018. "The maple bubble: A history of migration among Canadian provinces," Journal of Housing Economics, Elsevier, vol. 41(C), pages 57-71.
    2. Ahmed, Mumtaz & Bashir, Uzma & Ullah, Irfan, 2021. "Testing for explosivity in US-Pak Exchange Rate via Sequential ADF Procedures," MPRA Paper 109607, University Library of Munich, Germany.
    3. Samargandi, Nahla & Kutan, Ali M. & Sohag, Kazi & Alqahtani, Faisal, 2020. "Equity market and money supply spillovers and economic growth in BRICS economies: A global vector autoregressive approach," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).

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