TITLE:
Longer Data, Less “CHEER”—Case Study of Yen-Dollar Exchange Rate
AUTHORS:
Yan Zhao, Shen Guo, Zhiqiang Ye
KEYWORDS:
PPP, UIP, CHEER, Exchange Rate
JOURNAL NAME:
Modern Economy,
Vol.10 No.9,
September
12,
2019
ABSTRACT: This paper compares CHEER approach in both short-run
(since 1973) and long-run (since 1870) with the yen-dollar exchange rate. The
most important result is that CHEER is valid only in the period when the
international capital market is developed enough. Historical data will render
the interest rate parity insignificant and thus CHEER will fail. Also, the
paper demonstrates that when either PPP or UIP fails, modification of the
cointegration variables improves the
power of the CHEER test.