Analysis of Endogenous Real Exchange Rate Fluctuations — Application of Threshold Autoregressive Model
Date Issued
2007
Date
2007
Author(s)
Huang, Shiu-Ming
DOI
zh-TW
Abstract
This study aims to solve the puzzle proposed by Rogoff (1996), by adopting Chen(1998)’s theoretical model. Based on purchase power parity(PPP), the puzzle is the enormous short-run volatility and the persistent long-run inequilibrium of real exchange rate. Chen (1998) pointed out that, when the Marshall-Lerner condition is not satisfied, there exists the possibility of the indeterminacy of equilibrium. The existence of the
indeterminacy of equilibrium may be established by applying the theory of Hopf bifurcation. Further, according to Lorenz’s Theorem, analysis shows that Hopf
bifurcation occurs at a critical value of the key parameter, at which the eigenvalues are complex conjugates. On the other hand, it can also be derived from Chen’s model that the equilibrium of real exchange rate is a second-order nonlinear difference equation.
In terms of empirical evidence, the monthly data of real effective exchange rate from Japan was chosen to prove the existence of the indeterminacy of equilibrium, and to interpret why real exchange rate fluctuates violently in the short run. The Zivot-Andrews (1992) test was used to estimate structural change point, and to divide the sample period into two subperiods which exhibit stationary second-order autoregressive model. Then, by this characteristic of nonlinearity, the threshold autoregressive model, raised by Tsay (1989), was used to interpret the movement of real exchange rate of Japan as well. Last but not least, provided that the complex conjugates exist and the sum of modulus is close to one, the reason why real exchange rate remains inequilibrium constantly under stationary condition in the long run. can be explained.
Subjects
購買力平價難題
實質匯率
馬簍條件
不確定均衡
Zivot and Andrews 檢定
結構轉變點
二階自我相關模型
非線性
門檻自我迴歸模型
purchase power parity
real exchange rate
Marshall-Lerner condition
indeterminacy of equilibrium
Zivot -Andrews test
structural change point
second-order autoregressive model
nonlinearity
threshold autoregressive model
Type
thesis
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