ABSTRACT
This article examines the validity of the capital-enhanced equilibrium exchange rate (CHEER) approach using quarterly data ranging from 1993Q1 to 2016Q2. Using unit root break test and structural break cointegration technique, our overall results indicated that the CHEER is invalidated once a structural break is accounted for in the cointegration relationship. The rejection of the validity could be attributed to the asymmetry in the capital flows and exchange rates being not fully flexible.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 For a detailed review of different approaches on equilibrium exchange rates, see Égert, Halpern, and MacDonald (Citation2006).
2 The detailed procedure is explained in Johansen, Mosconi, and Nielsen (Citation2000).