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

Ghassen El Montasser, John Fry, Nicholas Apergis

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)34-46
JournalChina Economic Journal
Volume9
Issue number1
Early online date13 Jan 2016
DOIs
Publication statusPublished - Jan 2016

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