Forecasting performance of Logistic STAR exchange rate model: The original and reparameterised versions
Exponential Smooth Transition Autoregressive (ESTAR) model is widely adopted in the exchange rate study as its symmetrical distribution matches that of the symmetrical exchange rate adjustment behaviour. In contrast, another specification of STAR model, namely the LSTAR (logistic STAR) model is discarded by most researchers in priori in their exchange rate modeling exercises due to its undesired property of being asymmetry. This study is the first of its kind in examining the validity of this hypothesis that the ESTAR exchange rate model is superior to LSTAR exchange rate model on the basis of forecasting accuracy. Based on the experience of the adjustment process of two nominal exchange rates, we find that the hypothesis is merely theoretical since we fail to provide consistent empirical evidence in favour of the null hypothesis. This warrants us that we need not be too pessimistic on the usage of LSTAR model in exchange rate study. In our effort to rekindle the usage of LSTAR model, we further reparameterized the original version into the so-called absolute version, which has symmetrical distribution properties, in accordance with the well-known symmetrical adjustment process of exchange rate. The resulting ALSTAR model has proven to be a more promising model in the sense that it has improved significantly from its original version as well as the ESTAR model, which has thus far been deemed the most appropriate nonlinear exchange rate model.
|Date of creation:||Sep 2002|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sarno, Lucio & Taylor, Mark P, 1997.
"The Behaviour of Real Exchange Rates During the Post-Bretton Woods Period,"
CEPR Discussion Papers
1730, C.E.P.R. Discussion Papers.
- Taylor, Mark P. & Sarno, Lucio, 1998. "The behavior of real exchange rates during the post-Bretton Woods period," Journal of International Economics, Elsevier, vol. 46(2), pages 281-312, December.
- Venus Khim-Sen Liew & Ahmad Zubaidi Baharumshahb & Evan Laub, 2004. "Nonlinear Adjustment towards Purchasing Power Parity in ASEAN Exchange Rates," The IUP Journal of Applied Economics, IUP Publications, vol. 0(6), pages 7-18, November.
- Meese, R. & Rogoff, K., 1988.
"Was It Real? The Exchange Rate-Interest Differential Ralation Over The Modern Floating-Rate Period,"
368, Wisconsin Madison - Social Systems.
- Meese, Richard A & Rogoff, Kenneth, 1988. " Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period," Journal of Finance, American Finance Association, vol. 43(4), pages 933-48, September.
- Christopher F. Baum & Mustafa Caglayan & John Barkoulas, 1998.
"Nonlinear Adjustment to Purchasing Power Parity in the post-Bretton Woods Era,"
Boston College Working Papers in Economics
404., Boston College Department of Economics, revised 16 Nov 1999.
- Baum, Christopher F. & Barkoulas, John T. & Caglayan, Mustafa, 2001. "Nonlinear adjustment to purchasing power parity in the post-Bretton Woods era," Journal of International Money and Finance, Elsevier, vol. 20(3), pages 379-399, June.
- Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
- Álvaro Escribano & Oscar Jordá, 2001. "Testing nonlinearity: Decision rules for selecting between logistic and exponential STAR models," Spanish Economic Review, Springer, vol. 3(3), pages 193-209.
- Taylor, Mark P. & Peel, David A., 2000. "Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 33-53, February.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:511. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.