The Response of Exchange Rates to Permanent and Transitory Shocks under Floating Exchange Rates

Martin Evans and James Lothian

Chapter 1 in Studies in Foreign Exchange Economics, 2017, pp 3-38 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Traditional explanations of exchange-rate behavior have not fared well over the past two decades. Simple time series models have generally outperformed theoretically based models of exchange rates in forecasting nominal exchange rates during the floating-rate period. Movements in real and nominal exchange rates have been highly correlated. Perhaps most importantly, in all but a few instances, researchers have been unable to reject the hypothesis that real exchange rates have followed random walks during this period. As a consequence, purchasing power parity is now regarded by many, if not most, researchers as of virtually no use empirically. To explain exchange-rate movements under the float, there has been widespread resort to models in which real shocks play the dominant role…

Keywords: Exchange Rates; Foreign Currency; Microstructure (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789813148543_0001 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789813148543_0001 (text/html)
Ebook Access is available upon purchase.

Related works:
Journal Article: The response of exchange rates to permanent and transitory shocks under floating exchange rates (1993)
Working Paper: The Response of Exchange Rates to Permanent and Transitory Shocks under Floating Exchange Rates (1992)
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:wsi:wschap:9789813148543_0001

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().