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Are there bubbles in the Sterling-dollar exchange rate? New evidence from sequential ADF tests

Timo Bettendorf and Wenjuan Chen

No 2013-012, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: There has been mixed evidence regarding the existence of rational bubbles in the foreign exchange markets. This paper introduces recently developed sequential unit root tests into the analysis of exchange rates bubbles. We nd strong evidence of explosive behavior in the nominal Sterling-dollar exchange rate. However, this explosive behavior should not be simply interpreted as evidence of rational bubbles, as we show that it might be driven by the relative prices of traded goods.

Keywords: exchange rates; rational bubbles; sequential unit root test (search for similar items in EconPapers)
JEL-codes: C1 F3 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Journal Article: Are there bubbles in the Sterling-dollar exchange rate? New evidence from sequential ADF tests (2013) Downloads
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