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Asymmetry in the EMS: New evidence based on non-linear forecasts

  • Oscar Bajo-Rubio
  • Simón Sosvilla-Rivero
  • Fernado Fernández-Rodríguez

In this paper we provide new evidence on the hypothesis of German leadership and asymmetric performance in the EMS, in the framework of causality tests, using daily data. Given the evidence about non-linearity in financial series, we propose applying non-linear forecasting methods based on the literature on complex dynamic systems. Our analysis covers nine countries, and the sample period runs until 30 April 1998, so including the more recent events in the EMS history. A comparison of our results with those obtained from standard linear econometric techniques leads us to conclude that inference on causality based on our non-linear predictors would be preferable to that based on the standard linear approach.

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Paper provided by FEDEA in its series Working Papers with number 97-24.

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Handle: RePEc:fda:fdaddt:9724
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  10. Óscar Bajo Rubio & Simón Sosvilla Rivero & Fernando Fernández Rodríguez, 2000. "Asymmetry In The Ems: New Evidence Based On Non-Linear Forecasts," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0001, Departamento de Economía - Universidad Pública de Navarra.
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  17. Soofi, Abdol S. & Cao, Liangyue, 1999. "Nonlinear deterministic forecasting of daily Peseta-Dollar exchange rate," Economics Letters, Elsevier, vol. 62(2), pages 175-180, February.
  18. Henry, Jerome & Jens Weidmann, 1994. "Asymmetry in the EMS revisited: Evidence from the causality analysis of daily Eurorates," Discussion Paper Serie B 280, University of Bonn, Germany.
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