Testing for the effect of current-account ‘news’ on exchange rates: A critique |
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| Authors: | Stephen S. Golub |
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| Affiliation: | Yale University, New Haven, CT 06520, USA;Swartmore College, Swartmore, PA 19081, USA |
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| Abstract: | Dornbusch (1980) has observed a correlation between unexpected exchange-rate changes and unexpected current account balances, which he interprets as evidence in favor of the ‘news’ hypothesis of exchange-rate determination. It is shown here that his test is flawed by simultaneity problem. |
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