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Parity and non-parity determinants of exchange rates in Latin American economies

This paper reports how non-parity fundamental factors together with parity factors are correlated with exchange rate movements. Seven Latin American countries were included in this study using a selection criterion that for a pair of countries to be included, the pair must have more than 50 per cent...

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Main Authors: Ho, Catherine Soke Fun, Syed Mohamed, Mohamed Ariff
Format: Article
Language:English
Published: Taylor's Business School, Taylor's University 2014
Online Access:http://psasir.upm.edu.my/id/eprint/34408/1/Parity%20and%20non-parity%20determinants%20of%20exchange%20rates%20in%20Latin%20American%20economies.pdf
http://psasir.upm.edu.my/id/eprint/34408/
http://www.taylors.edu.my/tbr/archive/
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spelling my.upm.eprints.344082016-09-15T09:18:36Z http://psasir.upm.edu.my/id/eprint/34408/ Parity and non-parity determinants of exchange rates in Latin American economies Ho, Catherine Soke Fun Syed Mohamed, Mohamed Ariff This paper reports how non-parity fundamental factors together with parity factors are correlated with exchange rate movements. Seven Latin American countries were included in this study using a selection criterion that for a pair of countries to be included, the pair must have more than 50 per cent of trade with the group chosen. The econometric methods applied are appropriate to this topic and include pooled time series regression and seemingly unrelated regression. The findings show that there is support for short and long-run effects on exchange rates from inflation and interest rates. We entered non-parity factors suggested in recent research reports as likely determinants of the exchange rates, and found four non-parity factors that are significantly correlated with exchange rates and these served as control variables in our test model. Our main result shows that both inflation and interest rates are jointly significant factors in most of the tests. The results appear to suggest that exchange rate research should include both non-parity and parity factors. Only then would the parity factor effects be identifiable as relevant to exchange rate formation. Taylor's Business School, Taylor's University 2014 Article PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/34408/1/Parity%20and%20non-parity%20determinants%20of%20exchange%20rates%20in%20Latin%20American%20economies.pdf Ho, Catherine Soke Fun and Syed Mohamed, Mohamed Ariff (2014) Parity and non-parity determinants of exchange rates in Latin American economies. Taylor's Business Review, 4 (2). pp. 183-202. ISSN 2232-0172 http://www.taylors.edu.my/tbr/archive/
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
language English
description This paper reports how non-parity fundamental factors together with parity factors are correlated with exchange rate movements. Seven Latin American countries were included in this study using a selection criterion that for a pair of countries to be included, the pair must have more than 50 per cent of trade with the group chosen. The econometric methods applied are appropriate to this topic and include pooled time series regression and seemingly unrelated regression. The findings show that there is support for short and long-run effects on exchange rates from inflation and interest rates. We entered non-parity factors suggested in recent research reports as likely determinants of the exchange rates, and found four non-parity factors that are significantly correlated with exchange rates and these served as control variables in our test model. Our main result shows that both inflation and interest rates are jointly significant factors in most of the tests. The results appear to suggest that exchange rate research should include both non-parity and parity factors. Only then would the parity factor effects be identifiable as relevant to exchange rate formation.
format Article
author Ho, Catherine Soke Fun
Syed Mohamed, Mohamed Ariff
spellingShingle Ho, Catherine Soke Fun
Syed Mohamed, Mohamed Ariff
Parity and non-parity determinants of exchange rates in Latin American economies
author_facet Ho, Catherine Soke Fun
Syed Mohamed, Mohamed Ariff
author_sort Ho, Catherine Soke Fun
title Parity and non-parity determinants of exchange rates in Latin American economies
title_short Parity and non-parity determinants of exchange rates in Latin American economies
title_full Parity and non-parity determinants of exchange rates in Latin American economies
title_fullStr Parity and non-parity determinants of exchange rates in Latin American economies
title_full_unstemmed Parity and non-parity determinants of exchange rates in Latin American economies
title_sort parity and non-parity determinants of exchange rates in latin american economies
publisher Taylor's Business School, Taylor's University
publishDate 2014
url http://psasir.upm.edu.my/id/eprint/34408/1/Parity%20and%20non-parity%20determinants%20of%20exchange%20rates%20in%20Latin%20American%20economies.pdf
http://psasir.upm.edu.my/id/eprint/34408/
http://www.taylors.edu.my/tbr/archive/
_version_ 1643831145248325632
score 13.211869

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