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The Markov-switching Granger Causality of Asia-Pacific Exchange Rates

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  • Jing-Tung WU

    (Department of Finance, Ming Chuan University.)

Abstract

This paper examines the Granger causality relationships of the Asia-Pacific exchange rates. We employ Markov-switching vector autoregressive model to capture the dynamic linkages between them. Empirical examination processes use the nominal and real exchange rates of Chinese Yuan, Japanese yen, New Taiwan dollar and South Korean Won. The results of Markov-switching Granger causalities differ remarkably from the conventional linear model and provide more accurate measurement. We find the Markov-switching Granger causalities between exchange rates, and they vary with respect to the sample lag period. The mutual relationships between Asia-Pacific exchange rates are profound and lasting. This is suggested that we should use the nonlinear model to recheck the Granger causalities of exchange rates, and capture the fluctuations of Asia-Pacific exchange rates.

Suggested Citation

  • Jing-Tung WU, 2016. "The Markov-switching Granger Causality of Asia-Pacific Exchange Rates," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 94-115, September.
    • Handle: RePEc:rjr:romjef:v::y:2016:i:3:p:94-115
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    More about this item

    Keywords

    Asia-Pacific; exchange rate; Granger causality; Markov-switching vector autoregressive model;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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