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Real Exchange Rates and Switching Regimes

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  • Bergman, U. Michael

    ()
    (Department of Economics, Lund University)

  • Hansson, Jesper

    (Department of Economics, Lund University)

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    Abstract

    We suggest that the real exchange rate between the major currencies in the post-Bretton Woods period can be described by a stationary, two state Markov switching AR(1) model. Based on the forecast performance, both in-sample and out-of-sample, we find that this model out-performs two competing models where the real exchange rate is non-stationary. We also find that the existence of different regimes, as in the Markov switching model, is consistent with the common finding of unit roots in the real exchange rate.

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    Bibliographic Info

    Paper provided by Lund University, Department of Economics in its series Working Papers with number 1999:4.

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    Length: 21 pages
    Date of creation: 28 Sep 1999
    Date of revision: 08 Jun 2000
    Handle: RePEc:hhs:lunewp:1999_004

    Contact details of provider:
    Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
    Phone: +46 +46 222 0000
    Fax: +46 +46 2224613
    Web page: http://www.nek.lu.se/en
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    Related research

    Keywords: Real exchange rates; Markov switching autoregressive models; forecasts; simulation;

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    Cited by:
    1. Hyginus Leon & Serineh Najarian, 2005. "Asymmetric adjustment and nonlinear dynamics in real exchange rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 15-39.
    2. Jayasri Dutta, 2002. "Dread of Depreciation," IMF Working Papers 02/63, International Monetary Fund.
    3. H. L. Leon & Serineh Najarian, 2003. "Time-Varying Thresholds," IMF Working Papers 03/181, International Monetary Fund.

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