Exchange Rate Behavior of Canada, Japan, the United Kingdom and the United States

Mohamed Ariff () and Alireza Zarei

Open Economies Review, 2016, vol. 27, issue 2, No 7, 357 pages

Abstract: Abstract We revisit a significant research topic on exchange rate behavior by restating the test procedures with an appropriate econometric methodology to re-examine three aspects. (i) Does the inflation (price) factor affect nominal exchange rate? (ii) Do relative interest rates affect a country’s exchange rate? (iii) Do the price and interest rate effects hold if controls for non-parity factors are embedded in tests? The quarterly data series for this study are taken over 55 years. The traditional parity condition model with price and interest rate as criterion variables is extended to take into account recently-verified non-parity factors, namely trade, productivity and foreign reserves. The results affirm that both parity factors and also the non-parity factors significantly affect the exchange rates of Canada, Japan, the United Kingdom and the United States. In our view, these findings relating to four free-floating currencies help extend our knowledge on how currency behavior is consistent with parity and non-parity theorems using a relevant methodological approach in this study.

Keywords: Exchange rates; Non-parity factors; Panel cointegration; Dynamic OLS; Mean group; Pooled mean group (search for similar items in EconPapers)
JEL-codes: F23 F31 G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s11079-015-9372-x Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:27:y:2016:i:2:d:10.1007_s11079-015-9372-x

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11079/PS2

DOI: 10.1007/s11079-015-9372-x

Access Statistics for this article

Open Economies Review is currently edited by G.S. Tavlas

More articles in Open Economies Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().