Granger causality from exchange rates to fundamentals: What does the bootstrap test show us?

Hsiu Hsin Ko, Masao Ogaki

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

We use a residual-based bootstrap method to re-examine the finding of the Granger causality relation from exchange rates to fundamentals in Engel and West (2005), in which the relation is taken as evidence for their explanation for the present-value model for exchange rates. Our test results are against the previous findings. The Monte Carlo experiment results suggest that the previous evidence for the causality relation from exchange rates to fundamentals is very likely caused by the size distortion. Hence, the existing Granger causality evidence is not strong enough to validate the new explanation for the present-value model.

Original languageEnglish
Pages (from-to)198-206
Number of pages9
JournalInternational Review of Economics and Finance
Volume38
DOIs
Publication statusPublished - 2015 Jul 1

Keywords

  • Bootstrap test
  • Exchange rates
  • Fundamentals
  • Granger causality

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

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