Abstract
I test the bipolar view hypothesis on the exchange rates of countries of the Arab Monetary Fund (AMF) which are countries with relative free capital mobility. I find that oil price shocks seem to be the source of less flexible exchange rates.
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Notes
1 See Fischer (Citation2001) for summary statement about this view. Other authors supporting that view are Eichengreen (Citation1994), Obstfeld and Rogoff (Citation1995) and Summers (Citation2000).
2 One could also refer to Calvo-Reinhart's (Citation2002) ‘fear of floating’.
3 Tunisia followed a soft peg until 2008.
4 The model to estimate was determined after performing the adequate tests.
5 The conditional variance for the GARCH(1,1) is defined as
6 The degree of persistence increases with (a 1 + b 1 + ½γ). The size of this sum indicates how much time the variance will take to start decreasing after a shock has caused an initial increase. When this sum is above 1, other things equal, the conditional variance would continue increasing for a long period of time.