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Title:On causal relationships between exchange rates and fundamentals: Better than you think PDF Logo
Authors:Christopoulos, Dimitris
León-Ledesma, Miguel A.
Issue Date:2009
Series/Report no.:School of Economics discussion papers 09,09
Abstract:This note revisits the temporal causality between exchange rates and fundamentals put forward by Engel and West (2005). We analyze the causal link within multivariate VARs by making use of the concept of multi-step causality. Our results show that, considering information content beyond one-period ahead, the causal link between exchange rates and fundamentals is stronger than previously reported. We find Granger-causality running from exchange rates to fundamentals at some horizon in 49% of our tests and running from fundamentals to exchange rates in 59% of them.
Subjects:Granger-causality
multi-step
exchange rates
fundamentals
JEL:F31
F37
C32
Document Type:Working Paper
Appears in Collections:School of Economics Discussion Papers, University of Kent

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