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Granger causality from exchange rates to fundamentals: What does the bootstrap test show us?

Hsiu-Hsin Ko and Masao Ogaki

International Review of Economics & Finance, 2015, vol. 38, issue C, 198-206

Abstract: We use a residual-based bootstrap method to re-examine the finding of the Granger causality relation from exchange rates to fundamentals in Engel and West (2005), in which the relation is taken as evidence for their explanation for the present-value model for exchange rates. Our test results are against the previous findings. The Monte Carlo experiment results suggest that the previous evidence for the causality relation from exchange rates to fundamentals is very likely caused by the size distortion. Hence, the existing Granger causality evidence is not strong enough to validate the new explanation for the present-value model.

Keywords: Exchange rates; Fundamentals; Granger causality; Bootstrap test (search for similar items in EconPapers)
Date: 2015
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Working Paper: Granger Causality from Exchange Rates to Fundamentals: What Does the Bootstrap Test Show Us? (2013) Downloads
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DOI: 10.1016/j.iref.2015.02.016

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