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Maurer, R. The Time Series Properties of the Real Exchange Rates Between the Member States of the European Monetary Union. Credit and Capital Markets – Kredit und Kapital, 52(2), 149-171. https://doi.org/10.3790/ccm.52.2.149
Maurer, Rainer "The Time Series Properties of the Real Exchange Rates Between the Member States of the European Monetary Union" Credit and Capital Markets – Kredit und Kapital 52.2, 2019, 149-171. https://doi.org/10.3790/ccm.52.2.149
Maurer, Rainer (2019): The Time Series Properties of the Real Exchange Rates Between the Member States of the European Monetary Union, in: Credit and Capital Markets – Kredit und Kapital, vol. 52, iss. 2, 149-171, [online] https://doi.org/10.3790/ccm.52.2.149
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The Time Series Properties of the Real Exchange Rates Between the Member States of the European Monetary Union

Maurer, Rainer

Credit and Capital Markets – Kredit und Kapital, Vol. 52 (2019), Iss. 2 : pp. 149–171

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.52.2.149
Language
English
Pages
23
Keywords

Author Details

Prof. Dr. Rainer Maurer, Pforzheim University, Business School, Tiefenbronner Str. 65, 75175 Pforzheim, Phone.: +49-151-65114433

References

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  3. Andrews, D./Zivot, E. (1992): Further evidence on the Great Crash, the oil price shock, and the unit-root hypothesis. Journal of Business and Economic Statistics 10, 251–70.  Google Scholar
  4. Banerjee, A./Marcellino, M./Osbat, C. (2005): Testing for PPP: Should we use panel methods? Empirical Economics 30: 77–91.  Google Scholar
  5. Baum, C. F./Schaffer, M. E. (2013): Stata module to perform Cumby-Huizinga general test for autocorrelation in time series, http://ideas.repec.org/c/boc/bocode/s457668.html.  Google Scholar
  6. Beckmann, J./Belke, A./Kuehl, M. (2011): The Stability of the Dollar–Euro Exchange Rate Determination Equation – A Time-varying Coefficient Approach, in: Review of World Economics, Vol. 147/1, 11–40.  Google Scholar
  7. Belke, A./Gros, D. (2017): Optimal Adjustment Paths in a Monetary Union, Economic Modelling, Vol. 67, 338–345.  Google Scholar
  8. Breitung, J. (2000): The local power of some unit root tests for panel data. In Advances in Econometrics, Volume 15: Nonstationary Panels, Panel Cointegration, and Dynamic Panels, ed. B. H. Baltagi, 161–178.  Google Scholar
  9. Breitung, J./Das, S. (2005): Panel unit root tests under cross-sectional dependence. Statistica Neerlandica 59: 414–433.  Google Scholar
  10. Busetti, F./Forni, L./Harvey, A./Venditti, F. (2007): Inflation convergence and divergence within the European Monetary Union, International Journal of Central Banking, 3 (2): 95–121.  Google Scholar
  11. Cumby, R. E./Huizinga, J. (1992): Testing the autocorrelation structure of disturbances in ordinary least squares and instrumental variables regressions. Econometrica, 60:1, 185–195.  Google Scholar
  12. Cheung, Y./Lai, K. S. (1993): Finite sample sizes of Johansen’s likelihood ratio tests for cointegration, Oxford Bulletin of Economics and Statistics 55, 313–328.  Google Scholar
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  19. Hadri, K./Kurozumi, E. (2012): A simple panel stationarity test in the presence of serial correlation and a common factor, Economics Letters, Elsevier, vol. 115(1): pages 31–34.  Google Scholar
  20. Herwartz, H./Maxand, S./Raters, F./Walle, Y. (2018): Panel unit-root tests for hetero­skedastic panels, The Stata Journal, Volume 18 Number 1: pp. 184–196.  Google Scholar
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  27. Karanasos, M./Koutroumpis, P./Karavias, Y./Kartsaklas, A./Arakelian, V. (2016): Inflation convergence in the EMU, Journal of Empirical Finance, 39, issue PB, p. 241–253.  Google Scholar
  28. Kravis, I. B./Lipsey, R. E. (1991): The International Comparison Program: Current Status and Problems, in: Hooper, P. Richardson, J. D. (1991) International Economic Trans­actions: Issues in Measurement and Empirical Research, National Bureau of Economic Research (Book 55), University of Chicago Press.  Google Scholar
  29. Kwiatkowski, D./Phillips, P. C. B./Schmidt, P./Shin, Y. (1992): Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54, 1992, 159–178.  Google Scholar
  30. Lee, T./Tse, Y. (1996): Cointegration tests with conditional heteroscedasticity, Journal of Econometrics, 73, issue 2, p. 401–410 Levin et al. (2002): Levin, A./Lin C.-F./C.-S. J. Chu. 2002. Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics 108: 1–24.  Google Scholar
  31. MacKinnon, J. (1990): Critical Values for Cointegration Tests. Queen’s Economics Department Working Paper No. 1227, Queen’s University, Kingston, Canada, http://ideas.repec.org/p/qed/wpaper/1227.html.  Google Scholar
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  36. Phillips, P. C. B./Perron, P. (1988): Testing for a unit root in time series regression. Biometrika 75: 335–346.  Google Scholar
  37. Schaffer, M. E. (2010): Stata Module to perform Engle-Granger Cointegration Tests and 2-step ECM estimation, http://ideas.repec.org/c/boc/bocode/s457210.html.  Google Scholar
  38. Silvapulle, P. S./Podivinsky, J. M. (2000): The effect of non-normal disturbances and conditional heteroscedasticity on multiple cointegration tests, Journal of Statistical Computation and Simulation, 65:1–4, 173–189.  Google Scholar
  39. Stock, J. H. (1987): Asymptotic properties of least squares estimators of cointegrating vectors, Econometrica 55, 277–302.  Google Scholar
  40. Svensson, L. E. O. (1999): Price Level Targeting vs. Inflation Targeting: A Free Lunch?, Journal of Money, Credit and Banking, Vol. 31 (1999): 277–295.  Google Scholar
  41. Westerlund, J. (2015): The effect of recursive detrending on panel unit root tests, Journal of Econometrics 185 (2): 453–467.  Google Scholar
  42. Akaike, H. (1974): “A new look at the statistical model identification,” in IEEE Transactions on Automatic Control, vol. 19, no. 6, pp. 716–723.  Google Scholar
  43. Alcidi, C./Belke, A./Giovanni, A./Gros, D. (2016): Macroeconomic Adjustment Programmes in the Euro Area: An Overall Assessment, International Economics and Economic Policy, Vol. 13/3, pp. 345–358.  Google Scholar
  44. Andrews, D./Zivot, E. (1992): Further evidence on the Great Crash, the oil price shock, and the unit-root hypothesis. Journal of Business and Economic Statistics 10, 251–70.  Google Scholar
  45. Banerjee, A./Marcellino, M./Osbat, C. (2005): Testing for PPP: Should we use panel methods? Empirical Economics 30: 77–91.  Google Scholar
  46. Baum, C. F./Schaffer, M. E. (2013): Stata module to perform Cumby-Huizinga general test for autocorrelation in time series, http://ideas.repec.org/c/boc/bocode/s457668.html.  Google Scholar
  47. Beckmann, J./Belke, A./Kuehl, M. (2011): The Stability of the Dollar–Euro Exchange Rate Determination Equation – A Time-varying Coefficient Approach, in: Review of World Economics, Vol. 147/1, 11–40.  Google Scholar
  48. Belke, A./Gros, D. (2017): Optimal Adjustment Paths in a Monetary Union, Economic Modelling, Vol. 67, 338–345.  Google Scholar
  49. Breitung, J. (2000): The local power of some unit root tests for panel data. In Advances in Econometrics, Volume 15: Nonstationary Panels, Panel Cointegration, and Dynamic Panels, ed. B. H. Baltagi, 161–178.  Google Scholar
  50. Breitung, J./Das, S. (2005): Panel unit root tests under cross-sectional dependence. Statistica Neerlandica 59: 414–433.  Google Scholar
  51. Busetti, F./Forni, L./Harvey, A./Venditti, F. (2007): In?ation convergence and divergence within the European Monetary Union, International Journal of Central Banking, 3 (2): 95–121.  Google Scholar
  52. Cumby, R. E./Huizinga, J. (1992): Testing the autocorrelation structure of disturbances in ordinary least squares and instrumental variables regressions. Econometrica, 60:1, 185–195.  Google Scholar
  53. Cheung, Y./Lai, K. S. (1993): Finite sample sizes of Johansen’s likelihood ratio tests for cointegration, Oxford Bulletin of Economics and Statistics 55, 313–328.  Google Scholar
  54. Corden, W. M./Neary, J. P. (1982): Booming Sector and De-Industrialisation in a Small Open Economy. The Economic Journal. 92, December, 1982: 825–48.  Google Scholar
  55. Davidson, R./MacKinnon, J. G. (2004): Econometric Theory and Methods. New York: Oxford University Press. p. 623.  Google Scholar
  56. Dickey, D. A./Fuller, W. A. (1979): Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association 74: 427–431.  Google Scholar
  57. Fraser Archive (1943): Banking and Monetary Statistics, 1914–1941, FRASER archive at the Federal Reserve Bank of St. Louis, https://fraser.stlouisfed.org/title/38.  Google Scholar
  58. FRED (2017): Federal Reserve Economic Data, Consumer Price Indices, https://fred.stlouisfed.org/categories/32266, Download July 08, 2017.  Google Scholar
  59. Hadri, K. (2000): Testing for stationarity in heterogeneous panel data. Econometrics Journal 3: 148–161.  Google Scholar
  60. Hadri, K./Kurozumi, E. (2012): A simple panel stationarity test in the presence of serial correlation and a common factor, Economics Letters, Elsevier, vol. 115(1): pages 31–34.  Google Scholar
  61. Herwartz, H./Maxand, S./Raters, F./Walle, Y. (2018): Panel unit-root tests for hetero­skedastic panels, The Stata Journal, Volume 18 Number 1: pp. 184–196.  Google Scholar
  62. Herwartz, H./Maxand, S./Walle, Y. (2017): Heteroscedasticity-robust unit root testing for trending panels. Center for European, Governance and Economic Development Research Discussion Papers 314, University of Goettingen, Department of Economics. http://econpapers.repec.org/paper/zbwcegedp/314.htm.  Google Scholar
  63. Holz, M. (2007): Asset-Based Reserve Requirements: A New Monetary Policy Instrument for Targeting Diverging Real Estate Prices in the Euro Area, Intervention. Journal of Economics, 4 (2): 331–351.  Google Scholar
  64. Im, K. S./Pesaran, M. H./Shin, Y. (2003): Testing for unit root in heterogenous panels. Journal of Econometrics 115, 53–74.  Google Scholar
  65. Issing, O. (2001): The Single Monetary Policy of the European Central Bank: One Size Fits All, International Finance, Volume 4, Issue 3 Winter 2001.  Google Scholar
  66. Jarque, C. M./Bera, A. K. (1987): A test for normality of observations and regression residuals. International Statistical Review 2: 163–172.  Google Scholar
  67. Johansen, S. (1995): Likelihood-Based Inference in Cointegrated Vector Autoregressive Models. Oxford: Oxford University Press.  Google Scholar
  68. Karanasos, M./Koutroumpis, P./Karavias, Y./Kartsaklas, A./Arakelian, V. (2016): Inflation convergence in the EMU, Journal of Empirical Finance, 39, issue PB, p. 241–253.  Google Scholar
  69. Kravis, I. B./Lipsey, R. E. (1991): The International Comparison Program: Current Status and Problems, in: Hooper, P. Richardson, J. D. (1991) International Economic Trans­actions: Issues in Measurement and Empirical Research, National Bureau of Economic Research (Book 55), University of Chicago Press.  Google Scholar
  70. Kwiatkowski, D./Phillips, P. C. B./Schmidt, P./Shin, Y. (1992): Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54, 1992, 159–178.  Google Scholar
  71. Lee, T./Tse, Y. (1996): Cointegration tests with conditional heteroscedasticity, Journal of Econometrics, 73, issue 2, p. 401–410 Levin et al. (2002): Levin, A./Lin C.-F./C.-S. J. Chu. 2002. Unit root tests in panel data: Asymptotic and ?nite-sample properties. Journal of Econometrics 108: 1–24.  Google Scholar
  72. MacKinnon, J. (1990): Critical Values for Cointegration Tests. Queen’s Economics Department Working Paper No. 1227, Queen’s University, Kingston, Canada, http://ideas.repec.org/p/qed/wpaper/1227.html.  Google Scholar
  73. Maurer, R. (2010): Die Verschuldungskrise der Europäischen Währungsunion – Fiska­lische Disziplinlosigkeit oder Konstruktionsfehler?, Vierteljahrshefte zur Wirtschaftsforschung/Quarterly Journal of Economic Research, Vol. 79 (4).  Google Scholar
  74. Miller, M./Sutherland, A. (1991): The ‘Walters Critique’ of the EMS: A Case of Inconsistent Expectations, The Manchester School Vol LIX Supplement June 1991, pp. 23–37.  Google Scholar
  75. OECD (2010): Main Economic Indicators – complete database, Main Economic Indicators (database):http://dx.doi.org/10.1787/data-00052-en.  Google Scholar
  76. Palley, T. (2000): Stabilizing Finance: The Case for Asset Based Reserve Requirements, Financial Markets and Society. The Financial Markets Center, Philmont.  Google Scholar
  77. Phillips, P. C. B./Perron, P. (1988): Testing for a unit root in time series regression. Biometrika 75: 335–346.  Google Scholar
  78. Schaffer, M. E. (2010): Stata Module to perform Engle-Granger Cointegration Tests and 2-step ECM estimation, http://ideas.repec.org/c/boc/bocode/s457210.html.  Google Scholar
  79. Silvapulle, P. S./Podivinsky, J. M. (2000): The effect of non-normal disturbances and conditional heteroscedasticity on multiple cointegration tests, Journal of Statistical Computation and Simulation, 65:1–4, 173–189.  Google Scholar
  80. Stock, J. H. (1987): Asymptotic properties of least squares estimators of cointegrating vectors, Econometrica 55, 277–302.  Google Scholar
  81. Svensson, L. E. O. (1999): Price Level Targeting vs. Inflation Targeting: A Free Lunch?, Journal of Money, Credit and Banking, Vol. 31 (1999): 277–295.  Google Scholar
  82. Westerlund, J. (2015): The effect of recursive detrending on panel unit root tests, Journal of Econometrics 185 (2): 453–467.  Google Scholar

Abstract

The article “The Time Series Properties of the Real Exchange Rates Between the Member States of the European Monetary Union” analyses the time series behavior of the components of the real exchange rates between the founding member states of the EMU before and after the start of the EMU. Various panel and univariate country-specific tests show that the levels of these components are typically random walks. The resulting real exchange rates are also random walks and their components are not cointegrated. It is argued that these results question the operability of the EMU under the current policy regime in the long-run. One possibility to deal with this problem could be the suspension of the principle of a “single monetary policy”.

Table of Contents

Section Title Page Action Price
Rainer Maurer: The Time Series Properties of the Real Exchange Rates Between the Member States of the European Monetary Union 1
Abstract 1
Zusammenfassung: Die Zeitreiheneigenschaften der realen Wechselkurse der Mitgliedsländer der Europäischen Währungsunion 1
I. Introduction 2
II. Time Series Properties of Price Levels Under Inflation Targeting 3
III. Data 5
IV. Test Specification and Results 6
1. Consumer Price Index Unit Root Tests 6
2. Real Exchange Rate Unit Root Tests 9
3. Real Exchange Rate Cointegration Tests 1
V. Conclusions 1
References 2
Appendix Tables (Online-Only-Appendix) 2

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