TY - UNPB

T1 - Using a Theory-Consistent CVAR Scenario to Test an Exchange Rate Model Based on Imperfect Knowledge

AU - Juselius, Katarina

PY - 2017

Y1 - 2017

N2 - A theory-consistent CVAR scenario describes a set of testable regularities 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 obtained a remarkable support for almost every testable hypothesis and was able to adequately account for the long persistent swings in the real exchange rate.

AB - A theory-consistent CVAR scenario describes a set of testable regularities 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 obtained a remarkable support for almost every testable hypothesis and was able to adequately account for the long persistent swings in the real exchange rate.

KW - Faculty of Social Sciences

KW - Theory-Consistent CVAR

KW - Imperfect Knowledge

KW - Theory-Based Expectations

KW - International Puzzles

KW - Long Swings

KW - Persistence

KW - F31

KW - F41

KW - G15

KW - G17

KW - Theory-Consistent CVAR

KW - Imperfect Knowledge

KW - Theory-Based Expectations

KW - International Puzzles

KW - Long Swings

KW - Persistence

M3 - Working paper

T3 - University of Copenhagen. Institute of Economics. Discussion Papers (Online)

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

ER -