People in poverty : A Melbourne survey

• We show that empirical results concerning the behavior of áoating exchange rates di§er between otherwise identical cointegrated and non-cointegrated VAR models. In particular, virtually all ten-year movements in nominal exchange rates are due to fundamental supply and demand shocks when long run equilibrium relationships between the levels of the variables are included in the empirical speciÖcation. Another major di§erence between the models with the opposite im- plication for the shock creation versus shock absorption debate is that non-fundamental exchange rate shocks have much larger e§ects on output and ináation in the cointegrated models. Finally, impulse re- sponse functions in the Örst di§erence speciÖcation die out within a year whereas adjustment to long run equilibrium continues for up to ten years in the cointegrated models. Hence a correct speciÖcation of the long-run equilibrium dynamics of exchange rates is essential for capturing also short-run behavior of exchange rates.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Keyword

Exchange rates

asymmetric shocks

structural VAR

Economics

Nationalekonomi

Publication and Content Type

vet (subject category)

rap (subject category)