Parity Theorems Revisited: An Ardl Bound Test With Non-parity Factors
The research question addressed in this paper is, do inflation and interest rate differences across two major economies fully drive the long-run exchange rate changes if controls for non-parity factors are embedded? Exchange rate behaviour research is once again an interesting topic given the ava...
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Asian Academy of Management (AAM)
2015
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| Online Access: | http://eprints.usm.my/40028/1/AAMJAF_11%281%29_2015-Art._1%281-26%29.pdf http://eprints.usm.my/40028/ http://web.usm.my/journal/aamjaf/11-1-1-2015.html |
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| _version_ | 1834501935856615424 |
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| author | Mohamed Ariff, Mohamed Ariff Zarei, Alireza |
| author_facet | Mohamed Ariff, Mohamed Ariff Zarei, Alireza |
| author_sort | Mohamed Ariff, Mohamed Ariff |
| building | Hamzah Sendut Library |
| collection | Institutional Repository |
| content_provider | Universiti Sains Malaysia |
| content_source | USM Institutional Repository |
| continent | Asia |
| country | Malaysia |
| description | The research question addressed in this paper is, do inflation and interest rate differences
across two major economies fully drive the long-run exchange rate changes if controls
for non-parity factors are embedded? Exchange rate behaviour research is once again an
interesting topic given the availability of powerful econometric approaches to resolve
unsolved issues. We re-examine the exchange rate behaviour of the US economy,
applying a more appropriate econometric model using 55 years of quarterly data. The
model explains 96% of variation in exchange rates, which testifies to the model’s
appropriateness. The error correction estimate indicates a time-to-equilibrium of 0.139
per quarter; that is, full adjustment takes seven quarters. Tests indicate evidence of a
long-run relationship among the exchange rate, prices, and interest rates. The
coefficients on both parity factors (prices and interest rates) are statistically significant
with correct theory-suggested signs. These findings constitute strong evidence in support
of parity and non-parity theorems while confirming that the US currency behaviour over
1960–2014 is consistent with parity and non-parity theories |
| format | Article |
| id | my.usm.eprints.40028 |
| institution | Universiti Sains Malaysia |
| language | en |
| publishDate | 2015 |
| publisher | Asian Academy of Management (AAM) |
| record_format | eprints |
| spelling | my.usm.eprints.40028 http://eprints.usm.my/40028/ Parity Theorems Revisited: An Ardl Bound Test With Non-parity Factors Mohamed Ariff, Mohamed Ariff Zarei, Alireza HD28-70 Management. Industrial Management The research question addressed in this paper is, do inflation and interest rate differences across two major economies fully drive the long-run exchange rate changes if controls for non-parity factors are embedded? Exchange rate behaviour research is once again an interesting topic given the availability of powerful econometric approaches to resolve unsolved issues. We re-examine the exchange rate behaviour of the US economy, applying a more appropriate econometric model using 55 years of quarterly data. The model explains 96% of variation in exchange rates, which testifies to the model’s appropriateness. The error correction estimate indicates a time-to-equilibrium of 0.139 per quarter; that is, full adjustment takes seven quarters. Tests indicate evidence of a long-run relationship among the exchange rate, prices, and interest rates. The coefficients on both parity factors (prices and interest rates) are statistically significant with correct theory-suggested signs. These findings constitute strong evidence in support of parity and non-parity theorems while confirming that the US currency behaviour over 1960–2014 is consistent with parity and non-parity theories Asian Academy of Management (AAM) 2015 Article PeerReviewed application/pdf en http://eprints.usm.my/40028/1/AAMJAF_11%281%29_2015-Art._1%281-26%29.pdf Mohamed Ariff, Mohamed Ariff and Zarei, Alireza (2015) Parity Theorems Revisited: An Ardl Bound Test With Non-parity Factors. Asian Academy of Management Journal of Accounting and Finance, 11 (1). pp. 1-26. ISSN 1823-4992 http://web.usm.my/journal/aamjaf/11-1-1-2015.html |
| spellingShingle | HD28-70 Management. Industrial Management Mohamed Ariff, Mohamed Ariff Zarei, Alireza Parity Theorems Revisited: An Ardl Bound Test With Non-parity Factors |
| title | Parity Theorems Revisited: An Ardl Bound Test
With Non-parity Factors |
| title_full | Parity Theorems Revisited: An Ardl Bound Test
With Non-parity Factors |
| title_fullStr | Parity Theorems Revisited: An Ardl Bound Test
With Non-parity Factors |
| title_full_unstemmed | Parity Theorems Revisited: An Ardl Bound Test
With Non-parity Factors |
| title_short | Parity Theorems Revisited: An Ardl Bound Test
With Non-parity Factors |
| title_sort | parity theorems revisited: an ardl bound test
with non-parity factors |
| topic | HD28-70 Management. Industrial Management |
| url | http://eprints.usm.my/40028/1/AAMJAF_11%281%29_2015-Art._1%281-26%29.pdf http://eprints.usm.my/40028/ http://web.usm.my/journal/aamjaf/11-1-1-2015.html |
| url_provider | http://eprints.usm.my/ |