Engel and West (2005) proposed a near-unity discount factor approach to reconcile the weak link between exchange rates and economic fundamentals, this article applies global VAR methodology to rework their results. GVAR allows for interconnections and interdependencies existing between domestic and foreign markets, hence we obtain more evidence with statistical significance that exchange rates predict fundamentals; however, the way that economic fundamentals predict exchange rates is slightly improved.
|Effective start/end date
|2019/08/01 → 2020/07/31
- exchange rates
- economic fundamentals
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