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Econometrics 2017, 5(3), 30; doi:10.3390/econometrics5030030

Using a Theory-Consistent CVAR Scenario to Test an Exchange Rate Model Based on Imperfect Knowledge

Department of Economics, University of Copenhagen, DK-1353 Copenhagen K, Denmark
Academic Editor: Marc S. Paolella
Received: 1 March 2017 / Revised: 21 June 2017 / Accepted: 22 June 2017 / Published: 7 July 2017
(This article belongs to the Special Issue Recent Developments in Cointegration)
View Full-Text   |   Download PDF [379 KB, uploaded 7 July 2017]   |  

Abstract

A theory-consistent CVAR scenario describes a set of testable regularieties one should expect to see in the data if the basic assumptions of the theoretical model are empirically valid. Using this method, the paper demonstrates that all basic assumptions about the shock structure and steady-state behavior of an an imperfect knowledge based model for exchange rate determination can be formulated as testable hypotheses on common stochastic trends and cointegration. This model obtaines remarkable support for almost every testable hypothesis and is able to adequately account for the long persistent swings in the real exchange rate. View Full-Text
Keywords: theory-consistent CVAR; imperfect Knowledge; theory-based expectations; international puzzles; long swings; persistence theory-consistent CVAR; imperfect Knowledge; theory-based expectations; international puzzles; long swings; persistence
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Juselius, K. Using a Theory-Consistent CVAR Scenario to Test an Exchange Rate Model Based on Imperfect Knowledge. Econometrics 2017, 5, 30.

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