A CVAR scenario for a standard monetary model using theory-consistent expectations
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A CVAR scenario for a standard monetary model using theory-consistent expectations. / Juselius, Katarina.
2017.Research output: Working paper › Research
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TY - UNPB
T1 - A CVAR scenario for a standard monetary model using theory-consistent expectations
AU - Juselius, Katarina
PY - 2017
Y1 - 2017
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 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. While the scenario was rejected on essentially all counts, the results were informative about the cause of the empirical failure. It was the stationarity assumptions that were too restrictive to explain the long persistent swings in the real exchange rate and the interest rate differential.
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 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. While the scenario was rejected on essentially all counts, the results were informative about the cause of the empirical failure. It was the stationarity assumptions that were too restrictive to explain the long persistent swings in the real exchange rate and the interest rate differential.
KW - Faculty of Social Sciences
KW - Theory-Consistent CVAR
KW - Expectations
KW - International Puzzles
KW - Long Swings
KW - Persistence
KW - Imperfect Knowledge
KW - F31
KW - F41
KW - G15
KW - G17
KW - Theory-Consistent CVAR
KW - Expectations
KW - International Puzzles
KW - Long Swings
KW - Persistence
KW - Imperfect Knowledge
M3 - Working paper
T3 - University of Copenhagen. Institute of Economics. Discussion Papers (Online)
BT - A CVAR scenario for a standard monetary model using theory-consistent expectations
ER -
ID: 178283366