Exchange rate disequilibria integration and crisis: Canada, México, Japan and United Kingdom vs EE.UU. dollar (1994-2014)

Miriam Sosa and Edgar Ortiz ()
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Miriam Sosa: Universidad Nacional Autónoma de México

Contaduría y Administración, 2015, vol. 60, issue 6, 106-127

Abstract: Changes in exchange rate behavior derive in deviations from its long run equilibri¬um with other currencies; those deviations decrease confidence in a local currency, as well as in its value, leading to severe devaluations or depreciations; during periods of financial instability disequilibrium intensifies causing crisis, both in the case of developed and emerging economies. The objective of this work is analyzing the behavior, determi¬nation and long run relationships between exchange rates from Mexico, Canada. United Kingdom, Japan in relation to the dollar of the United States. Some integration and crisis aspects are stressed because the sample include the three members of NAFTA. A model of flexible prices (MFP) is applied. For plausible determinants of exchange rates are consid¬ered changes in the differentials of three key macroeconomic variables, local and foreign are used: industrial production, money supply M3, and interest rate. Econometric analysis includes a Multifactorial model, cointegration análisis, Granger causality analysis, and es¬timation of the error correction model (ECM), including a Vector Autorregressive Model. Monthly time series are used for the period June 1994 to February 2014. The empirical evidence suggests that exchange rates are generally associated with crisis in the economies of México, Canada, United Kingdom and Canada. Nevertheless, a long run equilibrium with respect to US dollar has been maintained; shocks from exchange rate have not broken that relationship.

Keywords: Crisis; Exchange rate; Currency disequilibria; Flexible prices model; Mexico (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:nax:conyad:v:60:y:2015:i:6:p:106-127

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