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Purchasing power parity and the dynamic adjusting behavior of short-term nominal exchange rateChen, I-Hsiu 05 July 2010 (has links)
Purchasing power parity (PPP) is considered as an important theory of explaining how
exchange rate varies in the long run. Most of empirical studies in the past adapted linear
cointegration method to test the purchasing power parity. However, there are papers point out
that exchange rate exists non-linear cointegration and unexplainable bias might exist in testing
the purchase power parity theory while using linear cointegration test. The methodology of
this study is based on an application of ESTR ECM proposed by Kapetaniosetet al. to enhance
the inadequate of linear cointegration test.
We analyze the dynamic adjusting behavior of short-term nominal exchange rate with ESTR
ECM model while the non-linear cointegratoin exists. The empirical result indicates that the
purchase power parity between Taiwan and its major trading countries is confirmed. Among the
trading countries, American, Japan and Hong Kong are suitable for using linear error correction
model and non-linear error correction model for Singapore and Korea.
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noneChen, Chi-chang 30 June 2009 (has links)
The methodology is based on an application of nonlinear ESTR ECM by Kapetanios et al.
(2006) to analyze the short-run dynamic adjustment to long-run equilibrium in Taiwan money
demand function. We take consideration of Taiwan as a small open economy system, the exchange
rate could be included in money demand function. The result indicate that using ESTR
ECM to analyze the adjustment behavior of money demand function in Taiwan is better than
linear ECM. Our findings point out that the public adjusts at any time for holding money and
the speed of adjustment for real balances depends on the size of deviation.
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