Macroeconomic fundamentals and exchange rates: a non-parametric cointegration analysis

This paper examines in a non-parametric setup whether a long-run relationship exists between monetary fundamentals and the dollar spot exchange rates for 19 countries. Although the Johansen's parametric approach failed to retrieve a long-relationship for any of the countries considered, the Bierens (1997a) non-parametric approach suggests that there is one cointegrating relationship for the majority of the countries considered. In addition, the [1, -1] cointegrating vector between the fundamentals and the log-level of the dollar exchange rate could not be rejected in the non-parametric formulation.