Testing for Convergence: the Punt-Sterling Relationship in the Context of the EMS

J.F. Macho and M.J.R. Castro

ASSET - Instituto De Economia Publica from ASSET (Association of Southern European Economic Theorists)

Abstract: This work seeks to analyze the stability of the exchange rate between the Irish and Sterling pounds. Towards this end, we work on a procedure, previously suggested by Haldane & Hall (1991), based on a regression with changing parameters and propose a statistical test of the null hypothesis of non-convergence versus the 'tendency towards convergence' alternative. The interest of the application rests in the fact that Ireland and the United Kingdom represent two countries that have traditionally maintained very strong commercial relationships, which forces them to maintain a very stable exchange rate in practice.

Keywords: EXCHANGE RATE; MONETARY AREAS; UNIT ROOTS (search for similar items in EconPapers)
JEL-codes: C62 F31 (search for similar items in EconPapers)
Date: 1997

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