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## Cross-section Dependence and the Monetary Exchange Rate Model – A Panel Analysis (2011)

Citations: | 1 - 0 self |

### Citations

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Citation Context ...ence of cross-section cointegration. The null hypothesis of nocointegration between the common factors can be investigated using standard time series tests such as the Johansen reduced rank approach (=-=Johansen, 1995-=-). The second case proposed by Gengenbach et al. (2006) refers to the situation in which both common and idiosyncratic stochastic trends are present in the data. In this case, both the common factors ... |

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Citation Context ... insignificant variables step by step. Since the sample under investigation includes more than 130 observations, the usual finite sample bias of dynamic panel estimations, the so-called Nickell-bias (=-=Nickell, 1981-=-), should be negligible. Consequently, the use of an instrument estimator such as the GMM estimator proposed by Arellano and Bond (1991) is not required. Instead, we use the seemingly unrelated regres... |

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Citation Context ...a 3.1 Cross-section dependence It is widely known that standard unit root and cointegration tests based on individual time series have low statistical power, especially when the time series is short (=-=Campbell and Perron, 1991-=-). In contrast, panel data methods have greater power by extending the time series dimension by the cross-sectional dimension, allowing 8 for higher degrees of freedom. As panel-based tests rely on a ... |

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Citation Context ...ting equation with UIP and condition an expectation formulation where the expected rate of depreciation is a function of an equilibrium exchange rate and the expected long-run inflation differential (=-=Frankel, 1979-=-). 7 The simplest form of the flexible price-monetary approach arises if the expected change in the exchange rate is considered to be stationary. With relative monetary velocity taken as a measure of ... |

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Citation Context ...on factors of income and money supply relative to the US is important as there is some evidence that some economic variables like money supplies might be better approximated as I(2) rather than I(1) (=-=Juselius, 2007-=-). On the contrary, the common factors might also be stationary if the non-stationarity of the original variable is mainly driven by the idiosyncratic component. To test the null hypothesis of a unit ... |

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Citation Context ...le been carried out by Hakkio (1984), Abuaf and Jorion (1990) and Wu (1996). See Sarno and Taylor (2003) for an overview. 4 the presence of cross-section cointegration can lead to biased conclusions (=-=Banerjee, Marcellino, and Osbat, 2004-=-). Hence, we focus on cross-section dependence in terms of common stochastic trends rather than correlations between errors across panel members since the latter does not necessarily imply cointegrati... |

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Citation Context ...For instance, cointegration across countries might occur if monetary policies are coordinated to limit exchange rate fluctuations such that currency prices cannot permanently diverge from each other (=-=Phengpis and Nguyen, 2009-=-). 1In the time series dimension these econometrics include non-linear approaches such as nonlinear error correction models (see, e.g., Taylor and Peel (2000); Taylor, Peel, and Sarno (2001)) or model... |

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