Tests for Nonlinearity in EMS Exchange Rates
Abstract
This paper tests for nonlinearity in EMS exchange rates using the bispectrum. The early experience of the ERM witnessed numerous realignments. We find that exchange rates follow a linear process over the period 1979-1987, consistent with the predictions of the realignment target zone model, where a stabilizing nonlinearity is absent. But from 1987-1992, no realignments occurred, and many currencies conformed to a nonlinear process, consistent with the credible target zone model where an inherent nonlinearity stabilizes exchange rates. However, the Italian lira and the Irish pound follow a linear process, which suggests that a target zone has not proven effective in stabilizing exchange rates.Download Info
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Bibliographic Info
Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.
Volume (Year): 1 (1996)
Issue (Month): 3 ()
Pages: 3
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Web page: http://www.degruyter.com
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Web: http://www.degruyter.com/view/j/snde
Related research
Keywords: bispectrum; spectral analysis;References
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Jes�s Rodríguez López & Hugo Rodríguez Mendizábal, 2007.
"The Optimal Degree of Exchange Rate Flexibility: a Target Zone Approach,"
Review of International Economics,
Wiley Blackwell, vol. 15(4), pages 803-822, 09.
- Jesús Rodríguez López & Hugo Rodríguez Mendizábal, 2006. "The optimal degree of exchange rate flexibility: A target zone approach," Working Papers 06.22, Universidad Pablo de Olavide, Department of Economics.
- Bernd Brandl & Christian Keber & Matthias Schuster, 2006. "An automated econometric decision support system: forecasts for foreign exchange trades," Central European Journal of Operations Research, Springer, vol. 14(4), pages 401-415, December.
- Jelena Zubkova & Egils Kauzens & Ivars Tillers & Martins Prusis, 2002. "Financial Market in Latvia," Working Papers 2002/02, Latvijas Banka.
- Kian-Ping Lim & Venus Khim-Sen Liew, 2003. "Testing for Non-Linearity in ASEAN Financial Markets," Finance 0308002, EconWPA.
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