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Modelling Ireland’s exchange rates : from EMS to EMU
Date Issued
2007-11-17
Date Available
2009-07-27T13:25:03Z
Abstract
This paper attempts to model the nominal and real exchange rate for Ireland, relative to Germany and the UK from 1975 to 2003. It offers an overview of the theory of purchasing power parity (Ppp), focusing particularly on likely sources of nonlinearity. Potential difficulties in placing the analysis in the standard I(1)/I(0) framework are highlighted and comparisons with previous Irish studies are made. Tests for fractional integration and nonlinearity, including random field regressions, are discussed and applied. The results obtained highlight the likely inadequacies of the standard cointegration and Star approaches to modelling, and point instead to multiple structural changes models. Using this approach, both bilateral nominal exchange rates are effectively modelled, and in the case of Ireland and Germany, Ppp is found to be valid not only in the long run, but also in the medium term.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Series
UCD Centre for Economic Research Working Paper Series
WP07/18
Classification
C22
C51
F31
F41
Subject – LCSH
Foreign exchange--Econometric models
Purchasing power parity
Stochastic processes
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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