Periodically Collapsing Rational Bubbles in Exchange Rates: A Markov-Switching Analysis for a Sample of Industrialised Markets
AbstractThis paper investigates the presence of periodically collapsing rational bubbles in exchange rates for a sample of industrialised countries. A periodically collapsing rational bubble is defined as an explosive deviation from economic fundamentals with distinct expansion and contraction phases in finite time. By using Markov-switching regime models we were not able to find robust evidence of a bubble driving the exchange rate away from fundamentals. Moreover, the results also revealed significant non-linearities and different regimes. The importance of these findings suggests that linear monetary models may not be appropriate to examine exchange rate movements.
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Bibliographic InfoPaper provided by Department of Economics, University of Kent in its series Studies in Economics with number 0604.
Date of creation: Sep 2006
Date of revision:
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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
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Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-16 (All new papers)
- NEP-CBA-2006-09-16 (Central Banking)
- NEP-ETS-2006-09-16 (Econometric Time Series)
- NEP-FMK-2006-09-16 (Financial Markets)
- NEP-IFN-2006-09-16 (International Finance)
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