TAR models and real exchange rates
AbstractThe recent past has seen an increased interest in piecewise linear real exchange rate models. By invoking Heckscher's (1916) 'commodity points' it has been argued that a threshold autoregressive (TAR) model should be used to study movements in the real exchange rate. This paper examines the problems of fitting TAR models to real exchange rates. We find that the power of the tests for TAR behavior can be very low for realistic parameter settings. Moreover the confidence intervalls for the threshold parameter are too wide to be used for economic analysis.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2001:21.
Length: 16 pages
Date of creation: 14 Nov 2001
Date of revision:
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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
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PPP; real exchange rate; threshold autoregression;
Find related papers by JEL classification:
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-11-21 (All new papers)
- NEP-ECM-2001-11-21 (Econometrics)
- NEP-ETS-2001-11-21 (Econometric Time Series)
- NEP-IFN-2001-11-21 (International Finance)
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