In several studies the unit root hypothesis of EMS exchange rates is analysed within the context of devaluation expectations estimation. By means of bootstrap inference it is shown that these procedures are not compatible with standard Dickey-Fuller significance levels and may lead to a wrong rejection of the null hypothesis. In the case of the Italian Lira/Deutsche Mark exchange rate, the hypothesis of a unit root is not rejected and expectations can be modelled by means of a reflected Brownian motion. The estimated devaluation expectations are related with some macro variables which provide evidence for the structure of expectations
Cavaliere, G. (1996). Devaluation expectations and the unit root hypothesis: the italian lira in the european monetary system. JOURNAL OF THE ITALIAN STATISTICAL SOCIETY, 5(1), 39-71 [10.1007/BF02589582].
Devaluation expectations and the unit root hypothesis: the italian lira in the european monetary system
Cavaliere, Giuseppe
1996
Abstract
In several studies the unit root hypothesis of EMS exchange rates is analysed within the context of devaluation expectations estimation. By means of bootstrap inference it is shown that these procedures are not compatible with standard Dickey-Fuller significance levels and may lead to a wrong rejection of the null hypothesis. In the case of the Italian Lira/Deutsche Mark exchange rate, the hypothesis of a unit root is not rejected and expectations can be modelled by means of a reflected Brownian motion. The estimated devaluation expectations are related with some macro variables which provide evidence for the structure of expectationsI documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.