Titlebook: Real Exchange Rate Movements; An Econometric Inves Sven-Morten Mentzel Book 1998 Springer-Verlag Berlin Heidelberg 1998 Au?enwirtschaft.Gel

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Motivation,hange rates have had been fluctuating to a large extent since the beginning of the period of flexible exchange rates in 1973 (see figure 1). Generally, it is assumed that these movements had bad effects on employment, inflation, allocation and growth in the industrialized countries and that they ini

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The Two-Country Overshooting Model and Construction of Variables, stems from Buiter (1988, p. 122) and is not reported here. Buiter did not derive an estimable equation for his two-country model. To get an estimable equation it was proceeded as follows: Buiter (1988, p. 124) derived the following equation for the long-run equilibrium real exchange rate:

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Tests for an Autoregressive Unit Root in the Variables of the Overshooting Model,ation (4) from section B. The tests of an autoregressive unit root are necessary in order to decide whether a cointegration analysis is useful. If all variables were I(0) processes, the effort to specify an error correction model would not be necessary and “classical” methods could be applied. The t

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Forecasting,results of the naive random walk model. Since the exchange rate is probably driven by “news” and different causes for excessive exchange rate movements, one cannot expect to get good forecasting results for structural exchange rate models. Despite these theoretical considerations, the out-ofsample f

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Motivation,, it is assumed that these movements had bad effects on employment, inflation, allocation and growth in the industrialized countries and that they initiated protectionist measures.. Therefore several proposals have been made to reduce these fluctuations.

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1431-1933 d by using a two-country overshooting model for real exchange rates with real government expenditure and by applying Johansen‘s maximum likelihood cointegration procedure and a factor model of Gonzalo and Granger to this model.978-3-7908-1081-3978-3-642-59017-7Series ISSN 1431-1933 Series E-ISSN 2197-7178

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1431-1933 eriod 1972-1994 with quarterly data to determine appropriate policy recommendations to reduce these movements. A second aim is to investigate whether the three real exchange rates are covariance-stationary or not and to which extent they are covariance-stationary, respectively. These aims are reache

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Results,ary excessive real exchange rate movements. Because of the stationarity of the transitory component nonstationary excessive real exchange movements can be excluded from the transitory components. These are real exchange rate movements caused by announced changes of stochastic processes of fundamenta