Real exchange rate persistence: the case of the Swiss franc-US dollar rate

Katarina Juselius and Katrin Assenmacher

No 14-26, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: Asset prices tend to undergo wide swings around long-run equilibrium values which can have detrimental effects on the real economy. To get a better understanding of how the fi?nancial sector and the real economy interact this paper models the long swings in the Swiss franc-US dollar foreign currency market using the I(2) Cointegrated VAR model. The results show strong evidence of self-reinforcing feedback mechanisms in the Swiss-US foreign exchange market consistent with the observed pronounced persistence in the Swiss-US parity conditions. Generally, the results provide support for models allowing expectations formation in fi?nancial markets to be based on imperfect information.

Keywords: Long swings; Imperfect Knowledge; I(2) analysis; Self-reinforcing feed-back (search for similar items in EconPapers)
JEL-codes: C32 C51 F31 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-11-10
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http://www.econ.ku.dk/english/research/publications/wp/dp_2014/1426.pdf (application/pdf)

Related works:
Working Paper: Real exchange rate persistence: The case of the Swiss franc-US dollar rate (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:1426

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