A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations
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A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations. / Juselius, Katarina.
In: Econometrics, Vol. 10, No. 2, 2022.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations
AU - Juselius, Katarina
PY - 2022
Y1 - 2022
N2 - A theory-consistent CVAR scenario describes a set of testable regularities capturing basic assumptions of the theoretical model. Using this concept, the paper considers a standard model for exchange rate determination with forward-looking expectations and shows that all assumptions about the model’s shock structure and steady-state behavior can be formulated as testable hypotheses on common stochastic trends and cointegration. The basic stationarity assumptions of the monetary model failed to obtain empirical support. They were too restrictive to explain the observed long persistent swings in the real exchange rate, the real interest rates, and the inflation and interest rate differentials.
AB - A theory-consistent CVAR scenario describes a set of testable regularities capturing basic assumptions of the theoretical model. Using this concept, the paper considers a standard model for exchange rate determination with forward-looking expectations and shows that all assumptions about the model’s shock structure and steady-state behavior can be formulated as testable hypotheses on common stochastic trends and cointegration. The basic stationarity assumptions of the monetary model failed to obtain empirical support. They were too restrictive to explain the observed long persistent swings in the real exchange rate, the real interest rates, and the inflation and interest rate differentials.
KW - Faculty of Social Sciences
KW - theory-consistent CVAR
KW - expectations
KW - international puzzles
KW - long swings
KW - persistence
KW - imperfect knowledge
U2 - 10.3390/econometrics10020016
DO - 10.3390/econometrics10020016
M3 - Journal article
VL - 10
JO - Econometrics
JF - Econometrics
SN - 2225-1146
IS - 2
ER -
ID: 343170683