In this chapter, the hypotheses of purchasing power parity (PPP) and market efficiency are tested for the bilateral exchange rate between the New Taiwan (N.T.) and the US dollar. Different test results lead to the conclusion that, a PPP relationship over the long term cannot be rejected...

Vector error-correction models (VECM) are increasingly being used to capture dynamic relationships between financial variables. Estimation and interpretation of such models can be enhanced if zero restrictions are allowed in the coefficient matrices. Specifically, in tests of indirect causality...