Are There Bubbles in the Sterling-dollar Exchange Rate? New Evidence from Sequential ADF Tests

Wenjuan Chen and Timo Bettendorf

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

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 find 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.

JEL-codes: C01 F31 G12 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (52)

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Related works:
Journal Article: Are there bubbles in the Sterling-dollar exchange rate? New evidence from sequential ADF tests (2013)
Working Paper: Are there bubbles in the Sterling-dollar exchange rate? New evidence from sequential ADF tests (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc13:80002

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