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3-Regime symmetric STAR modeling and exchange rate reversion

  • Cerrato, Mario
  • Kim, Hyunsok
  • MacDonald, Ronald

The breakdown of the Bretton Woods system and the adoption of generalized oating exchange rates ushered in a new era of exchange rate volatility and uncer- tainty. This increased volatility lead economists to search for economic models able to describe observed exchange rate behavior. In the present paper we propose more general STAR transition functions which encompass both threshold nonlinearity and asymmetric e¤ects. Our framework allows for a gradual adjustment from one regime to another, and considers threshold e¤ects by encompassing other existing models, such as TAR models. We apply our methodology to three di¤erent exchange rate data-sets, one for developing countries, and o¢ cial nominal exchange rates, the sec- ond emerging market economies using black market exchange rates and the third for OECD economies.

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File URL: http://hdl.handle.net/10943/126
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Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2009-07.

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Date of creation: 2009
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Handle: RePEc:edn:sirdps:126
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  8. Joon Y. Park & Mototsugu Shintani, 2006. "Testing for a Unit Root against Transitional Autoregressive Models," Levine's Bibliography 321307000000000316, UCLA Department of Economics.
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