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Estimating Exchange Rate Dynamics with Diffusion Processes : An Application to Greek EMU Data

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  • Wilfling, Bernd
  • Trede, Mark

Abstract

Recently various exchange rate models capturing the dynamics during the transition from an exchange rate arrangement of floating rates into a currency union have been derived. Technically, these stochastic equilibrium models are diffusion processes which have to be estimated by discretely sampled observations. Using daily exchange rate data prior to the Greek EMU-entrance in January 2001 this paper develops a rigorous estimation procedure. The estimates provide statistical evidence of increased central bank intervention activities in the run-up to the Greek EMU entrance. Thus the modelling and estimation framework establishes an approach for detecting intervention phases in the absence of concrete intervention data. --

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Bibliographic Info

Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 267.

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Date of creation: 2004
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Handle: RePEc:zbw:hwwadp:267

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Keywords: Diffusion processes; estimation; exchange rates; EMU; central bank interventions;

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Cited by:
  1. Jeff Hamrick & Murad Taqqu, 2009. "Testing diffusion processes for non-stationarity," Computational Statistics, Springer, vol. 69(3), pages 509-551, July.
  2. Zhao, Shoujiang & Zhou, Yanping, 2013. "Sharp large deviations for the log-likelihood ratio of an α-Brownian bridge," Statistics & Probability Letters, Elsevier, vol. 83(12), pages 2750-2758.

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