3-Regime symmetric STAR modeling and exchange rate reversion

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3-Regime symmetric STAR modeling and exchange rate reversion

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Mario Cerrato
Hyunsok Kim
Ronald MacDonald

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Abstract

The breakdown of the Bretton Woods system and the adoption of generalised floating exchange rates ushered in a new era of exchange rate volatility and uncertainty. This increased volatility lead economists to search for economic models able to describe observed exchange rate behavior. In the present paper we propose more general STAR transition functions which encompass both threshold nonlinearity and asymmetric effects. Our framework allows for a gradual adjustment from one regime to another, and considers threshold effects by encompassing other existing models, such as TAR models. We apply our methodology to three different exchange rate data-sets, one for developing countries, and official nominal exchange rates, and the second for emerging market economies using black market exchange rates and the third for OECD economies.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2009_05.

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Date of creation: Dec 2008
Date of revision: Feb 2009
Handle: RePEc:gla:glaewp:2009_05

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Find related papers by JEL classification:
C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Econometric and Statistical Methods; Specific Distributions
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-03-22 (All new papers)
NEP-CBA-2009-03-22 (Central Banking)
NEP-ETS-2009-03-22 (Econometric Time Series)
NEP-IFN-2009-03-22 (International Finance)
NEP-OPM-2009-03-22 (Open MacroEconomics)

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