n African Finance Journal - Stock prices and the exchange rate in a monetary model : a ARDL Bounds testing approach using South African data
|Article Title||Stock prices and the exchange rate in a monetary model : a ARDL Bounds testing approach using South African data|
|© Publisher:||AfricaGrowth Institute|
|Journal||African Finance Journal|
|Publication Date||Jan 2008|
|Pages||1 - 27|
|Keyword(s)||ARDL, Bounds testing, Cointegration, E44, Exchange rate, F30, F31, F41, F47, Flexible Price Model (FPM), Sticky Price Model (SPM) and Stock price|
We investigate the empirical validity of the monetary model of the exchange rate (Rand / Dollar = ZAR / $ = e) using a technique (ARDL Bounds test) capable of testing for the existence of a long-run relationship regardless of whether the underlying time series are individually I(I) or I(O). Monetary fundamental variables (money supply, income, interest rate) are augmented by the stock market prices. We find evidence supporting the existence of a long-run relationship between the ZAR / $ exchange rate and fundamental variables, including stock prices. With the exception of relative money supplies where, we offer various explanations, all variables have the correct sign and plausible magnitudes.
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