A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations
A theory-consistent CVAR scenario describes a set of testable regularities capturing basic assumptions of the theoretical model. Using this concept, the paper considers a standard model for exchange rate determination with forward-looking expectations and shows that all assumptions about the model’s...
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-04-01
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| Series: | Econometrics |
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| Online Access: | https://www.mdpi.com/2225-1146/10/2/16 |
| _version_ | 1797488116408254464 |
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| author | Katarina Juselius |
| author_facet | Katarina Juselius |
| author_sort | Katarina Juselius |
| collection | DOAJ |
| description | A theory-consistent CVAR scenario describes a set of testable regularities capturing basic assumptions of the theoretical model. Using this concept, the paper considers a standard model for exchange rate determination with forward-looking expectations and shows that all assumptions about the model’s shock structure and steady-state behavior can be formulated as testable hypotheses on common stochastic trends and cointegration. The basic stationarity assumptions of the monetary model failed to obtain empirical support. They were too restrictive to explain the observed long persistent swings in the real exchange rate, the real interest rates, and the inflation and interest rate differentials. |
| first_indexed | 2024-03-09T23:57:33Z |
| format | Article |
| id | doaj.art-856fc8d15cc34d6e92210a6622436424 |
| institution | Directory Open Access Journal |
| issn | 2225-1146 |
| language | English |
| last_indexed | 2024-03-09T23:57:33Z |
| publishDate | 2022-04-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Econometrics |
| spelling | doaj.art-856fc8d15cc34d6e92210a66224364242023-11-23T16:21:57ZengMDPI AGEconometrics2225-11462022-04-011021610.3390/econometrics10020016A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking ExpectationsKatarina Juselius0Department of Economics, University of Copenhagen, Øster Farimasgade 5, 1355 Copenhagen, DenmarkA theory-consistent CVAR scenario describes a set of testable regularities capturing basic assumptions of the theoretical model. Using this concept, the paper considers a standard model for exchange rate determination with forward-looking expectations and shows that all assumptions about the model’s shock structure and steady-state behavior can be formulated as testable hypotheses on common stochastic trends and cointegration. The basic stationarity assumptions of the monetary model failed to obtain empirical support. They were too restrictive to explain the observed long persistent swings in the real exchange rate, the real interest rates, and the inflation and interest rate differentials.https://www.mdpi.com/2225-1146/10/2/16theory-consistent CVARexpectationsinternational puzzleslong swingspersistenceimperfect knowledge |
| spellingShingle | Katarina Juselius A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations Econometrics theory-consistent CVAR expectations international puzzles long swings persistence imperfect knowledge |
| title | A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations |
| title_full | A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations |
| title_fullStr | A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations |
| title_full_unstemmed | A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations |
| title_short | A Theory-Consistent CVAR Scenario for a Monetary Model with Forward-Looking Expectations |
| title_sort | theory consistent cvar scenario for a monetary model with forward looking expectations |
| topic | theory-consistent CVAR expectations international puzzles long swings persistence imperfect knowledge |
| url | https://www.mdpi.com/2225-1146/10/2/16 |
| work_keys_str_mv | AT katarinajuselius atheoryconsistentcvarscenarioforamonetarymodelwithforwardlookingexpectations AT katarinajuselius theoryconsistentcvarscenarioforamonetarymodelwithforwardlookingexpectations |