 Modelling Ireland’s exchange rates: from EMS to EMUDerek Bond, Michael J. Harrison and Edward O'Brien No 200718, Working Papers from School of Economics, University College Dublin Abstract: This paper attempts to model the nominal and real exchange rate for Ireland, relative to Germany and the UK from 1975 to 2003. It offers an overview of the theory of purchasing power parity (Ppp), focusing particularly on likely sources of nonlinearity. Potential difficulties in placing the analysis in the standard I(1)/I(0) framework are highlighted and comparisons with previous Irish studies are made. Tests for fractional integration and nonlinearity, including random field regressions, are discussed and applied. The results obtained highlight the likely inadequacies of the standard cointegration and Star approaches to modelling, and point instead to multiple structural changes models. Using this approach, both bilateral nominal exchange rates are effectively modelled, and in the case of Ireland and Germany, Ppp is found to be valid not only in the long run, but also in the medium term. Keywords: Purchasing power parity; Fractional Dickey-Fuller tests; Smooth transition autoregression; Random field regression; Multiple structural changes models; Foreign exchange--Econometric models; Purchasing power parity; Stochastic processes (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:200718 Access Statistics for this paper More papers in Working Papers from School of Economics, University College Dublin Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.