Testing Exchange Rate Models for Ethiopia (A V AR approach)
No Thumbnail Available
Date
1996-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
This paper is intended to design and select an exchange
rate model that is consistent with the available information
in Ethiopia. The models include: the Interest Parity
Condition(IPC), a version of the Frankel's(1979) long-run
exchange rate model and a Meese's(1986) model of exchange rate
which is constructed from the deviation of Purchasing Power
parity(PPP). For this task, we have adopted Johansen's and
Vector Autoregressive Representation (VAR) modelling methodology
to conduct a test for the application of three popular exchange
rate models. The validity of these models have been repeatedly
analyzed under three major currencies against Ethiopian Birr.
Based on the finding of this paper, we are inclined to
conclude that to construct exchange rate model for Ethiopia,
Frankel's model is strongly supported by the empirical
evidence. Exchange rate models representation implied by the
interest parity condition and model of Meese(1986) are rejected
for all currencies for Ethiopian data. The failure of the
model suggested by interest parity condition and Meese's model
can be capture by various econometric tests such as Johansen's
co integration and VAR modelling tests and variance ratio test
Description
Keywords
Exchange Rate Models, For Ethiopia