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A random coefficient model of speculative attacks: The case of the Mexican peso

Author

Listed:
  • Joseph Aschheim
  • Costas Christou
  • P. Swamy
  • George Tavlas

Abstract

A considerable body of theoretical and empirical literature has developed seeking to explain the timing, magnitude, and mechanics of speculative attacks against currencies. This paper extends the empirical specification of the traditional speculative attack model by developing a random coefficient (RC) model which, as we show, encompasses a variety of fixed-coefficient models as special cases. Two classes of models (fixed- and random-coefficient models) are estimated for the case of Mexican peso over the period January 1988 to Novemeber 1994, while forecasts of the peso/U.S. dollar exchange rate are generated for the period December 1994 through December 1995. The comparison of forecast errors generated by five model specifications indicates that forecasts based on the RC procedures are superior to those based on the fixed-coefficient estimation. It is also shown that there are good theoretical reasons why the RC procedure performs better in prediction than the fixed-coefficient procedure. Copyright Kluwer Academic Publishers 1996

Suggested Citation

  • Joseph Aschheim & Costas Christou & P. Swamy & George Tavlas, 1996. "A random coefficient model of speculative attacks: The case of the Mexican peso," Open Economies Review, Springer, vol. 7(1), pages 553-571, March.
    • Handle: RePEc:kap:openec:v:7:y:1996:i:1:p:553-571
    DOI: 10.1007/BF01886213
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    References listed on IDEAS

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    More about this item

    Keywords

    Random Coefficient Models; Forecasting; Speculative Attacks; C22; C51; F31; F33;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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