A Univariate Analysis of EMS Exchange Rates Using a Target Zone Model
AbstractThe models in the literature on exchange-rate target zones imply a non-linear time series model for the exchange rate. We show how the parameters of such models can be estimated and develop Maximum Likelihood and Method of Simulated Moments estimators for the target zone model of Krugman (1991). The Maximum Likelihood estimator is based on a computationally attractive approximation to the exact predictive density of the continuous time model. Monte Carlo experiments are used to assess the properties of this estimator. In the empirical part we estimate the model with data on recent EMS exchange rates. We find that the Krugman (1991) target zone model is not able to explain the full observed kurtosis and conditional heteroscedasticity of the exchange-rate returns. Copyright 1994 by John Wiley & Sons, Ltd.
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Bibliographic InfoPaper provided by Tilburg - Center for Economic Research in its series Papers with number 9155.
Length: 43 pages
Date of creation: 1991
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exchange rate ; economic models ; maximum likelihood;
Other versions of this item:
- de Jong, F, 1994. "A Univariate Analysis of EMS Exchange Rates Using a Target Zone Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(1), pages 31-45, Jan.-Marc.
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