A Strange Animal? The Swiss Franc Exchange Rate as a "Captured" Random Walk
AbstractThe paper aims to describe the behavior of the Swiss Franc - Deutsch Mark exchange rate between January 1980 and December 1998. Contrary to research results provided for other currencies a random walk is not sufficient to describe the empirical characteristics of the Swiss Franc. A regime switching approach shows that changes in the spot rate levels alternate between two regimes: a random walk and an autoregressive process. Mean reverting forces exist that "capture" the random walk within elastic bounds. Equally, we find that the volatility of the process is better described by a regime switching model and that low levels of volatility are associated with exchange rate movements close to a level of 0.80 SFR per DEM.
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Bibliographic InfoArticle provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.
Volume (Year): 141 (2005)
Issue (Month): IV (December)
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More information through EDIRC
nominal exchange rate; regime switching; random walk;
Find related papers by JEL classification:
- F00 - International Economics - - General - - - General
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
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- Baum, Christopher F. & Barkoulas, John T. & Caglayan, Mustafa, 2001.
"Nonlinear adjustment to purchasing power parity in the post-Bretton Woods era,"
Journal of International Money and Finance,
Elsevier, vol. 20(3), pages 379-399, June.
- Christopher F. Baum & Mustafa Caglayan & John Barkoulas, 1998. "Nonlinear Adjustment to Purchasing Power Parity in the post-Bretton Woods Era," Boston College Working Papers in Economics 404., Boston College Department of Economics, revised 16 Nov 1999.
- Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
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