Real Exchange Rates and Switching Regimes
AbstractWe 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 InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 1999:4.
Length: 21 pages
Date of creation: 28 Sep 1999
Date of revision: 08 Jun 2000
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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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Real exchange rates; Markov switching autoregressive models; forecasts; simulation;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-01-24 (All new papers)
- NEP-ETS-2000-01-24 (Econometric Time Series)
- NEP-IFN-2000-01-24 (International Finance)
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- Jayasri Dutta, 2002. "Dread of Depreciation," IMF Working Papers 02/63, International Monetary Fund.
- H. L. Leon & Serineh Najarian, 2003. "Time-Varying Thresholds," IMF Working Papers 03/181, International Monetary Fund.
- Hyginus Leon & Serineh Najarian, 2005. "Asymmetric adjustment and nonlinear dynamics in real exchange rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 10(1), pages 15-39.
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