Fundamentals,regime shifts,and dollar behavior in the 1980s |
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Authors: | Giulio Cifarelli |
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Institution: | (1) Facolta' di Scienze Politiche, University of Florence, Firenze, Italy |
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Abstract: | I provide an economic interpretation of the long swings of the dollar in the 1980s. I use the fully modified estimator method to analyze the long-run behavior of the dollar/sterling exchange rate over the period 1979–1989, detecting a structural shift in February–March 1985. In the 1979–1985 subperiod economic agents have reacted to a reduced set of fundamentals only, a finding that might corroborate the irrational behavior interpretation of the dollar upswing. In the 1985–1989 subperiod economic agents have associated the equilibrium value of the dollar with the behavior of a more balanced set of fundamentals. |
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Keywords: | dollar behavior regime shifts cointegration analysis |
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