Using a Theory-Consistent CVAR Scenario to Test an Exchange Rate Model Based on Imperfect Knowledge

31 Pages Posted: 10 Apr 2017

See all articles by Katarina Juselius

Katarina Juselius

University of Copenhagen - Department of Economics

Date Written: April 10, 2017

Abstract

A theory-consistent CVAR scenario describes a set of testable regularities one should expect to see in the data if the basic assumptions of the theoretical model are empirically valid. Using this method, the paper demonstrates that all basic assumptions about the shock structure and steady-state behavior of an an imperfect knowledge based model for exchange rate determination can be formulated as testable hypotheses on common stochastic trends and cointegration. This model obtained a remarkable support for almost every testable hypothesis and was able to adequately account for the long persistent swings in the real exchange rate.

Keywords: Theory-Consistent CVAR, Imperfect Knowledge, Theory-Based Expectations, International Puzzles, Long Swings, Persistence

JEL Classification: F31, F41, G15, G17

Suggested Citation

Juselius, Katarina, Using a Theory-Consistent CVAR Scenario to Test an Exchange Rate Model Based on Imperfect Knowledge (April 10, 2017). Available at SSRN: https://ssrn.com/abstract=2949775 or http://dx.doi.org/10.2139/ssrn.2949775

Katarina Juselius (Contact Author)

University of Copenhagen - Department of Economics ( email )

Ă˜ster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
39
Abstract Views
599
PlumX Metrics