Explosive bubbles in the US–China exchange rate? Evidence from right-tailed unit root tests

El Montasser, Ghassen, Fry, John and Apergis, Nicholas (2016) Explosive bubbles in the US–China exchange rate? Evidence from right-tailed unit root tests. China Economic Journal, 9 (1). pp. 34-46. ISSN 1753-8963

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Abstract

In this article we apply novel right-tailed unit root (sup Augmented Dickey-Fuller (SADF) and generalized sup ADF) tests to the China–US exchange rate. The empirical results document that the recent financial crisis in 2008 may be preceded by early warning signs of exuberance. Using the SADF test, evidence of an explosive behavior in the nominal exchange is found from 2005 onwards. This period coincides with both financial reforms in China and early indications of an impending US crisis that both have been reported in the literature. Our findings suggest that such an explosive behavior may be attributable to differences in the relative prices of traded goods. Policy implications are also derived.

Item Type:	Article
Uncontrolled Keywords:	rational bubbles, explosive bubbles, exchange rates, US dollar–Chinese yuan exchange rate, C15, C22, G01
Subjects:	N300 Finance
Department:	Faculties > Business and Law > Newcastle Business School
Depositing User:	Paul Burns
Date Deposited:	27 Jan 2016 16:36
Last Modified:	19 Nov 2019 09:04
URI:	http://nrl.northumbria.ac.uk/id/eprint/25729

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