Granger Causality from Exchange Rates to Fundamentals: What Does the Bootstrap Test Show Us?

Hsiu-Hsin Ko and Masao Ogaki
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Hsiu-Hsin Ko: National University of Kaohsiung

No 577, RCER Working Papers from University of Rochester - Center for Economic Research (RCER)

Abstract: We use a residual-based bootstrap method to re-examine the finding of the Granger causality relationship from exchange rates to fundamentals in Engel and West (Exchange rate and fundamentals, Journal of Political Economy 2005, 113 (3), 485\96517), in which the evidence for the relation is taken as evidence for the present-value model for exchange rates. The test results are against the previous findings. The Monte Carlo experiment results suggest that the causality test implemented in the previous study tends to spuriously reject null hypotheses. Thus, the existing evidence for the present value model for exchange rates is not robust.

Keywords: Bootstrap; Granger causality; exchange rates; fundamentals (search for similar items in EconPapers)
JEL-codes: C32 F30 F31 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-02
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-exp, nep-mon and nep-opm
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Granger causality from exchange rates to fundamentals: What does the bootstrap test show us? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:roc:rocher:577

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