Causal relationship testing with applications to exchange rates

T. J. Brailsford, Jack Penm*, R. D. Terrell

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)


    This paper undertakes two causality studies with exchange rate applications in a framework of Zero-Non-Zero (ZNZ) patterned Vector Error-Correction Modelling (VECM). The first study shows that money supply is a source of financial and economic influence on the Euro. The second gives evidence of support for Purchasing Power Parity (PPP) using monthly data between Japan and the USA. The results indicate that high-frequency finance data can reveal the existence of long-term PPP. This evidence sheds light on the adjustment mechanisms through which PPP is achieved. Also, the proposed ZNZ patterned VECM modelling allows better insights from this kind of financial time-series analysis.

    Original languageEnglish
    Pages (from-to)50-69
    Number of pages20
    JournalInternational Journal of Electronic Finance
    Issue number1
    Publication statusPublished - 2008


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