Does Mixed Frequency Vector Error Correction Model Add Relevant Information to Exchange Misalignment Calculus? Evidence for United States

20 Pages Posted: 18 Oct 2014

See all articles by Emerson Fernandes Marçal

Emerson Fernandes Marçal

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Beatrice Zimmermann

Getulio Vargas Foundation (FGV), Sao Paulo School of Economics, Students

Diogo de Prince

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Giovanni Tondin Merlin

Getulio Vargas Foundation (FGV), Sao Paulo School of Economics, Students

Date Written: October 16, 2014

Abstract

Real exchange rate is an important macroeconomic price in the economy and affects economic activity, interest rates, domestic prices, trade and investments flows among other variables. Methodologies have been developed in empirical exchange rate misalignment studies to evaluate whether a real effective exchange is overvalued or undervalued. There is a vast body of literature on the determinants of long-term real exchange rates and on empirical strategies to implement the equilibrium norms obtained from theoretical models. This study seeks to contribute to this literature by showing that it is possible to calculate the misalignment from a mixed cointegrated vector error correction framework. An empirical exercise using United States' real exchange rate data is performed. The results suggest that the model with mixed frequency data is preferred to the models with same frequency variables.

Keywords: mixed frequency, cointegration, exchange rate misalignment

JEL Classification: F31, C52, F37

Suggested Citation

Marçal, Emerson Fernandes and Zimmermann, Beatrice and de Prince, Diogo and Merlin, Giovanni Tondin, Does Mixed Frequency Vector Error Correction Model Add Relevant Information to Exchange Misalignment Calculus? Evidence for United States (October 16, 2014). Available at SSRN: https://ssrn.com/abstract=2510961 or http://dx.doi.org/10.2139/ssrn.2510961

Emerson Fernandes Marçal (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Plínio Barreto 365 sala 1421
São Paulo, São Paulo 01332-000
Brazil
551137993382 (Phone)

HOME PAGE: http://sites.google.com/view/emersonmarcal/

Beatrice Zimmermann

Getulio Vargas Foundation (FGV), Sao Paulo School of Economics, Students ( email )

Rua Itapeva 474 s.1202
São Paulo
Brazil

Diogo De Prince

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Brazil

Giovanni Tondin Merlin

Getulio Vargas Foundation (FGV), Sao Paulo School of Economics, Students ( email )

Rua Itapeva 474 s.1202
São Paulo
Brazil

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