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Testing for two-regime threshold cointegration in the parallel and official markets for foreign currency in Greece

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  • Nektarios Aslanidis

    (Department of Economics, University of Crete, Greece)

  • George Kouretas

    ()
    (Department of Economics, University of Crete, Greece)

Abstract

This paper models the short-run as well as the long-run relationship between the parallel and official markets for US dollars in Greece in a threshold VECM framework. Modeling exchange rates within this context can be motivated by the fact that the transition mechanism is controlled by the parallel market premium. The results show that linearity is rejected in favour of a TVECM specification, which forms statistically an adequate representation of the data. Two regimes are implied by the model; the “typical” regime, which applies most of the time and the “unusual” one associated with economic and political events t hat took place in Greece during the 1980s. Another implication is that in the parallel exchange rate there are strong asymmetries between the two regimes in the speed of adjustment to the long-run equilibrium. Finally, Granger causality runs from the official to the parallel market in both regimes but not vice versa.

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Bibliographic Info

Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0311.

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Length: 30 pages
Date of creation: 00 Nov 2003
Date of revision:
Handle: RePEc:crt:wpaper:0311

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Keywords: Parallel market premium; nonlinearity; threshold cointegration; regime switching;

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References

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Cited by:
  1. Chevallier, Julien, 2011. "Evaluating the carbon-macroeconomy relationship: Evidence from threshold vector error-correction and Markov-switching VAR models," Economics Papers from University Paris Dauphine 123456789/6970, Paris Dauphine University.
  2. Mamatzakis, E & Remoundos, P, 2010. "Threshold Cointegration in BRENT crude futures market," MPRA Paper 19978, University Library of Munich, Germany.
  3. Dirk Meyer & Michael Vogelsang & Anton Beer & André ten Dam, 2011. "Eurokrise: Ist eine temporäre Einführung einer Parallelwährung in den Krisenstaaten eine Lösung?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(23), pages 12-25, December.

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