Back Matter
Author: Melesse Tashu

Appendix Tables

Table 1.

Unit Root Test Results 1/2/

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Null Hypothesis is unit root in all cases. The Null Hypothesis is accepted for t-statistics greater than corresponding critical values.

All variables are expressed in natural logarithmic form.

As a ratio of previous period’s total external trade in goods and services.

In percent of GDP.

Johansen Cointegration Tests between the Real Effective Exchange Rate and the Fundamentals

(a) Cointegration between LREER and LRP_COM

MacKinnon-Haug-Michelis (1999) p-values

Rejection of the hypothesis at 10% level.

(b) Cointegration among LREER, LRP_COM, LGCN, and LPROD_M

MacKinnon-Haug-Michelis (1999) p-values

Rejection of the hypothesis at 10% level.

(c) Cointegration restriction tests

Rejection of the hypothesis at 5% level.

Rejection of the hypothesis at 1% level.

(d) Cointegration among LREER, LGCN, and LPROD_M

MacKinnon-Haug-Michelis (1999) p-values

Rejection of the hypothesis at 5% level.

Rejection of the hypothesis at 1% level.

(e) LREER, LRP_COM, LPROFIT, and LNIR

MacKinnon-Haug-Michelis (1999) p-values

Denotes rejection of the hypothesis at 10% level.

Denotes rejection of the hypothesis at 5% level.

Denotes rejection of the hypothesis at 1% level.

(f) LNIR and LRP_COM

MacKinnon-Haug-Michelis (1999) p-values

Denotes rejection of the hypothesis at 1% level.

(g) LPROFIT and LRP_COM

MacKinnon-Haug-Michelis (1999) p-values

Denotes rejection of the hypothesis at 10 level.

Denotes rejection of the hypothesis at 5 level.

Table 3.

Gregory-Hansen Test for Cointegration with Regime Shift: annual sample (1970-2013)1/

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The null hypothesis is ‘no cointegration’.

Includes LRP_COM, LPROD, LGCN and LNFL.

Null hypothesis regected at 10% significance level.

Null hypothesis regected at 1% significance level.

Table 4.

Estimating Non-linear Cointegrations using the FMOLS Method: annual sample (1970-2013)

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RS1987 refers to dummy for regime shift in 1987, identified by the Gregory-Hansen test (Appendix Table 3a).

RS1988 refers to dummy for regime shift in 1988, identified by the Gregory-Hansen test (Appendix Table 3b).

LNFL and TRADE_OPEN (dummy for trade openness) show no change in the sign of their coefficients when interacted with RS1988. As a result, they are included without interactions.

TRADE_OPEN was not included in the cointegration test in Appendix Table 3b since the Gregory-Hansen test does not allow for more than four right hand side variables and dummy variables.

Table 5.

Empirical Evidence on Commodity Currency

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Appendix Figure

A01ufig01

Peru: The Real Effective Exchange Rate and the Fundamentals

Citation: IMF Working Papers 2015, 026; 10.5089/9781498302760.001.A999

Source: BCRP, BEA, Haver, IFS, INS, WEO, and author’s calculations.

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The author is grateful to Alejandro Werner, Alejandro Santos, Luca Ricci, Adrián Armas, Paul Castillo, and participants in the presentation at the BCRP for their valuable comments and suggestions. All potential errors are mine.

1

The terminologies ‘real exchange rate’ and ‘real effective exchange rate’ both of which refer to the exchange rate of the nuevo sol against a basket of currencies of major trading partner countries adjusted for price differentials between Peru and trading partner countries are used interchangeable in this study.

2

Metal exports represent about 55 percent of Peru’s total export receipts.

3

While the inflation targeting framework was introduced in 2002, the monetary targeting framework, which was in place prior to 2002, is also credited to have reduced and stabilized inflation from the 1980s hyperinflation.

4

Complementary fiscal policy and the use of reserve requirements have helped the BCRP sustain its sterilized forex interventions without compromising the health of its balance sheet. For instances, about 37½ percent and 34½ percent of the forex intervention in 2013 was sterilized by public sector deposits and reserve requirements, respectively, and only about 11½ percent of the intervention was sterilized through central bank instruments (Rossini et al, 2014). In this regard, the positive commodity price shock, which increased tax revenues from the mineral sector, has helped the Treasury to provide support to the central bank’s sterilization effort.

5

The NIR used here excludes valuation effects so that changes in NIR reflect mostly of forex interventions and other measures aimed at containing exchange rate volatility such as changes in reserve requirements on foreign currency liabilities.

6

All of the variables have unit root (Appendix Table 1). The Augmented-Dickey-Fuller (ADF) test seems to suggest that LNIR is I(0) when constant or constant and trend are added. But the ADF test is known to have low power; i.e., has the tendency to reject the null hypothesis of I(1) too often when it is true. The more efficient unit root test, the Dickey-Fuller GLS (DF-GLS) test, however, accepts the null hypothesis at all levels of significance, suggesting that the NIR is I(1). Johansen’s Trace and Maximum Eigenvalue cointegration tests show the presence of a statistically significant cointegration vector among the variables in each of the three equations.

7

The results for the annual data are obtained following the procedure described above; i.e. testing for cointegration with regime shift using Gregory-Hansen’s test and estimating the long-run relationship using non-linear FMOLS (Appendix Tables 3b, 4b and 4c). In this case, the break was identified as 1988/89.

Drivers of Peru's Equilibrium Real Exchange Rate: Is the Nuevo Sol a Commodity Currency?
Author: Melesse Tashu