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Testing for explosive bubbles in the South African-US exchange rate using the sequential ADF procedures

Journal: Banks and bank systems [electronic resource] (Vol.12, No. 1)

Publication Date:

Authors : ; ;

Page : 105-112

Keywords : exchange rates; non-traded goods; rational bubbles; sequential unit root test; traded goods;

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Abstract

This paper tests for the existence of speculative bubbles in the South African-US exchange rate using the sequential ADF procedures. In particular, the paper uses the SADF and GSADF right-tailed unit root tests to explore the existence of explosive bubbles in the South African-US exchange rate for the time period running from January1980 through July 2012. The results provide evidence in support of the existence of explosive bubbles in the nominal rand-dollar exchange rate, the real exchange rate of traded and non-traded goods. The explosive behavior exhibited by the South African rand-US dollar exchange rate can be interpreted as evidence of rational bubbles given that this behavior is driven by the fundamentals including relative prices of traded and non-traded goods.

Last modified: 2018-03-16 16:20:19