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Is economic exposure asymmetric between long-run depreciations and appreciations? Testing using cointegration analysis

Kanas, Angelos (1997) Is economic exposure asymmetric between long-run depreciations and appreciations? Testing using cointegration analysis. Journal of Multinational Financial Management, 7 (1). pp. 27-42. ISSN 1042-444X. (doi:10.1016/S1042-444X(97)00003-0) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)
Official URL
http://dx.doi.org/10.1016/S1042-444X(97)00003-0

Abstract

Theoretical models of pricing-to-market suggest that the profile of economic exposure may be asymmetric between periods when the real exchange rate appreciates and periods when it depreciates. We test this hypothesis using time-series data on export prices for eight commodities exported from the UK to the US during the period 1981-1988. During this period, there was a long-term real depreciation of the £ against the $ (1981 I-1985 I) followed by a long-term real appreciation (1985 II-1988 IV). To test for cointegration between the export price of each commodity and the real exchange rate, we apply the Phillips and Ouliaris (1990) and Johansen and Juselius (1990) methods. As the latter allows linear restrictions on the cointegrating vector to be imposed and tested for directly, we adopt the Johansen and Juselius method and impose a linear restriction on the cointegrating vector to test for asymmetry. The results are generally in favour of this hypothesis. The implication for financial hedging against economic exposure is that currency options should be preferred to forwards, futures or swaps contracts. © 1997 Elsveier Science B.V.

Item Type: Article
DOI/Identification number: 10.1016/S1042-444X(97)00003-0
Uncontrolled keywords: Cointegration, Export prices, Market share objective
Subjects: H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School > Accounting and Finance
Depositing User: Tracey Pemble
Date Deposited: 22 May 2014 15:21 UTC
Last Modified: 29 May 2019 12:36 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/41166 (The current URI for this page, for reference purposes)
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