IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v49y2017i36p3645-3668.html
   My bibliography  Save this article

Revisiting the exchange rate disconnect puzzle

Author

Listed:
  • George B. Tawadros

Abstract

One of the major anomalies in International Macroeconomics is the persistent finding that the exchange rate has no empirical relationship with a variety of macroeconomic fundamentals. Dubbed the ‘exchange rate disconnect puzzle’, this article examines this issue for five Australian dollar bilateral exchange rates, using quarterly data for the period 1984:1–2015:4. A novel feature of this article is that it departs from the extant literature by using a different approach to testing for cointegration. The results show that the exchange rates and fundamentals move together in the long run. Furthermore, the results show that fundamentals Granger cause exchange rates, both in the short run and the long run.

Suggested Citation

  • George B. Tawadros, 2017. "Revisiting the exchange rate disconnect puzzle," Applied Economics, Taylor & Francis Journals, vol. 49(36), pages 3645-3668, August.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:36:p:3645-3668
    DOI: 10.1080/00036846.2016.1265077
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2016.1265077
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2016.1265077?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xie, Zixiong & Chen, Shyh-Wei, 2019. "Exchange rates and fundamentals: A bootstrap panel data analysis," Economic Modelling, Elsevier, vol. 78(C), pages 209-224.
    2. Agus Salim & Kai Shi, 2019. "A Cointegration of the Exchange Rate and Macroeconomic Fundamentals: The Case of the Indonesian Rupiah vis-á-vis Currencies of Primary Trade Partners," JRFM, MDPI, vol. 12(2), pages 1-17, May.
    3. Shamaila Butt & Suresh Ramakrishnan & Nanthakumar Loganathan & Muhammad Ali Chohan, 2020. "Evaluating the exchange rate and commodity price nexus in Malaysia: evidence from the threshold cointegration approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-19, December.
    4. Kharrat, Sabrine & Hammami, Yacine & Fatnassi, Ibrahim, 2020. "On the cross-sectional relation between exchange rates and future fundamentals," Economic Modelling, Elsevier, vol. 89(C), pages 484-501.
    5. Kenneth W Clements & Yihui Lan & Haiyan Liu & Long Vo, 2022. "The Icp, Ppp And Household Expenditure Patterns," Economics Discussion / Working Papers 22-18, The University of Western Australia, Department of Economics.
    6. Simiso MSOMI & Harold NGALAWA, 2023. "The Movement of Exchange Rate and Expected Income: Case of South Africa," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 7(2), pages 65-89.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joshy Easaw & Roberto Golinelli, 2022. "Professionals Inflation Forecasts: The Two Dimensions Of Forecaster Inattentiveness [“Sectoral and aggregate inflation dynamics in the euro area”]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 701-720.
    2. Bernard, Jean-Thomas & Idoudi, Nadhem & Khalaf, Lynda & Yelou, Clement, 2007. "Finite sample multivariate structural change tests with application to energy demand models," Journal of Econometrics, Elsevier, vol. 141(2), pages 1219-1244, December.
    3. Zheng, Li & Abbasi, Kashif Raza & Salem, Sultan & Irfan, Muhammad & Alvarado, Rafael & Lv, Kangjuan, 2022. "How technological innovation and institutional quality affect sectoral energy consumption in Pakistan? Fresh policy insights from novel econometric approach," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    4. Sun, Yanpeng & Song, Yuru & Long, Chi & Qin, Meng & Lobonţ, Oana-Ramona, 2023. "How to improve global environmental governance? Lessons learned from climate risk and climate policy uncertainty," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1666-1676.
    5. Jan Gottschalk & Ulrich Fritsche, 2005. "The New Keynesian Model and the Long-Run Vertical Phillips Curve: Does It Hold for Germany?," Discussion Papers of DIW Berlin 521, DIW Berlin, German Institute for Economic Research.
    6. Rasmus Fatum & Jesper Pedersen & Peter Norman Sørensen, 2010. "Are the Intraday Effects of Central Bank Intervention on Exchange Rate Spreads Asymmetric and State Dependent?," Discussion Papers 10-20, University of Copenhagen. Department of Economics.
    7. Candelon, Bertrand & Lieb, Lenard, 2013. "Fiscal policy in good and bad times," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2679-2694.
    8. González-Rivera, Gloria & Sun, Yingying, 2017. "Density forecast evaluation in unstable environments," International Journal of Forecasting, Elsevier, vol. 33(2), pages 416-432.
    9. Neely, Christopher J. & Weller, Paul, 2000. "Predictability in International Asset Returns: A Reexamination," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(4), pages 601-620, December.
    10. Baum, Christopher F & Karasulu, Meral, 1998. "Modelling Federal Reserve Discount Policy," Computational Economics, Springer;Society for Computational Economics, vol. 11(1-2), pages 53-70, April.
    11. Guntram B. Wolff & Alexander Schulz, 2008. "Sovereign bond market integration: the euro, trading platforms and globalisation," European Economy - Economic Papers 2008 - 2015 332, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    12. Garcia, Rene, 1998. "Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 763-788, August.
    13. Franses, P.H. & McAleer, M., 1995. "Testing Nested and Non-Nested Periodically Integrated Autoregressive Models," Papers 9510, Tilburg - Center for Economic Research.
    14. Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "Causality Between Per Capita Real GDP and Income Inequality in the U.S.: Evidence from a Wavelet Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 135(1), pages 269-289, January.
    15. Aslanidis, Nektarios, 2007. "Business Cycle Regimes in CEECs Production: A Threshold SURE Approach," Working Papers 2072/5318, Universitat Rovira i Virgili, Department of Economics.
    16. Pierre Perron & Yohei Yamamoto, 2022. "Structural change tests under heteroskedasticity: Joint estimation versus two‐steps methods," Journal of Time Series Analysis, Wiley Blackwell, vol. 43(3), pages 389-411, May.
    17. Rebeca Jiménez-Rodríguez, 2004. "Oil Price Shocks: Testing for Non-linearity," CSEF Working Papers 115, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    18. Fidrmuc, Jan & Horvath, Julius & Fidrmuc, Jarko, 1999. "The Stability of Monetary Unions: Lessons from the Breakup of Czechoslovakia," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 753-781, December.
    19. Alessandro Casini & Pierre Perron, 2021. "Change-Point Analysis of Time Series with Evolutionary Spectra," Papers 2106.02031, arXiv.org, revised Jun 2021.
    20. Neil R. Ericsson, 2021. "Dynamic Econometrics in Action: A Biography of David F. Hendry," International Finance Discussion Papers 1311, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:49:y:2017:i:36:p:3645-3668. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.