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Nonlinear dependence in British pound exchange rates

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  • Angelos Kanas

Abstract

The Brock, Dechert and Scheinkman (1987) method is used to test for nonlinear dependence in daily rates of change of the exchange rate of the British pound relative to seven most heavily traded currencies against the pound during the period 2 January 1993 to 7 October 1996. The currencies are the US dollar, the Deutsche mark, the French franc, the Swiss franc, the Canadian dollar, the Japanese yen and the Italian lira. The results suggest that nonlinear dependence exists in all seven British pound exchange rates. Except for the US dollar, nonlinear dependence is due to nonlinearity in the variance and is captured by a GARCH(l,l)-t model. For the US dollar, nonlinear dependence is due to nonlinearity both in the mean and the variance and is captured by a GARCH-in-mean (GARCH-M) model.

Suggested Citation

  • Angelos Kanas, 1997. "Nonlinear dependence in British pound exchange rates," Applied Economics Letters, Taylor & Francis Journals, vol. 4(10), pages 631-633.
    • Handle: RePEc:taf:apeclt:v:4:y:1997:i:10:p:631-633
    DOI: 10.1080/758533289
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    References listed on IDEAS

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    1. Hsieh, David A., 1992. "A nonlinear stochastic rational expectations model of exchange rates," Journal of International Money and Finance, Elsevier, vol. 11(3), pages 235-250, June.
    2. Hsieh, David A, 1989. "Testing for Nonlinear Dependence in Daily Foreign Exchange Rates," The Journal of Business, University of Chicago Press, vol. 62(3), pages 339-368, July.
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    Cited by:

    1. M. Shibley Sadique, 2011. "Testing for Neglected Nonlinearity in Weekly Foreign Exchange Rates," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 77-88, June.

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