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Non-linear characteristics of the sterling/European Currency Unit exchange rate: 1984-1992

  • David Chappell
  • Robert Eldridge
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    The behaviour of the Sterling/European Currency Unit (ECU) exchange rate is examined both during the time before Britain joined the European exchange rate mechanism (ERM) and during the time of Britain's membership. During the latter period, a GARCH (1, 1) model fits the data well but during the pre-ERM period there is evidence of significant non-linear - possibly chaotic - structure in the GARCH residuals. Analysis of the dominant Lyapunov exponents and correlation dimension for the pre-ERM period suggests that the data generation process may be chaotic and this is reinforced by the highly significant BDS statistics obtained for this sample period.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/135184797337507
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    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 3 (1997)
    Issue (Month): 2 ()
    Pages: 159-182

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    Handle: RePEc:taf:eurjfi:v:3:y:1997:i:2:p:159-182
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    1. repec:att:wimass:9520 is not listed on IDEAS
    2. Ramsey, J.B. & Sayers, C.L. & Rothman, P., 1988. "The Statistical Properties Of Dimension Calculations Using Small Data Sets: Some Economic Applications," Papers 15, Houston - Department of Economics.
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    4. Ashley, Richard A & Patterson, Douglas M, 1989. "Linear versus Nonlinear Macroeconomies: A Statistical Test," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 685-704, August.
    5. Gerald P. Dwyer, Jr. & R.W. Hafer, 1988. "The stock market--bubbles, volatility and chaos : proceedings of the thirteenth annual Economic Policy Conference, held on October 21-22, 1988," Proceedings, Federal Reserve Bank of St. Louis.
    6. Scheinkman, Jose A & LeBaron, Blake, 1989. "Nonlinear Dynamics and Stock Returns," The Journal of Business, University of Chicago Press, vol. 62(3), pages 311-37, July.
    7. Richard Meese & Kenneth Rogoff, 1981. "Empirical exchange rate models of the seventies: are any fit to survive?," International Finance Discussion Papers 184, Board of Governors of the Federal Reserve System (U.S.).
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