American Economic Review · 1990 · 1K citations · 21 references
Social SciencesEconomicsFinancial EconomicsMonetary EconomicsTime Series AnalysisBalance Of PaymentsExchange Rate DeterminationInterest Rate ParityInternational Monetary RelationsMonetary PolicyCurrency ForecastingInterest Parity DeviationsMonetary Policy DynamicsNull HypothesisRandom Walk HypothesisReal Exchange Rate DynamicsStatistical Model SpecificationUncovered Interest Rate Parity
The dollar’s value tends to move persistently in one direction over long periods. The study develops a statistical model of exchange rate dynamics as stochastic, segmented time trends and uses it to assess the peso problem’s impact on the dollar. They model exchange rate dynamics as a sequence of stochastic, segmented time trends. The model rejects the random‑walk hypothesis, yields superior forecasts, and also rejects uncovered interest parity. © 1990 American Economic Association.
The value of the dollar appears to move in one direction for long periods of time. The authors develop a new statistical model of exchange rate dynamics as a sequence of stochastic, segmented time trends. They reject the null hypothesis that exchange rates follow a random walk in favor of their model of long swings. The authors' model also generates better forecasts than a random walk. The specification is a natural framework for assessing the importance of the peso problem for the dollar. The authors nonetheless reject uncovered interest parity. Copyright 1990 by American Economic Association.
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Empirical exchange rate models of the seventies
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