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Estimating Exchange Rate Dynamics with Diffusion Processes : An Application to Greek EMU Data

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  • Wilfling, Bernd
  • Trede, Mark

Abstract

Recently various exchange rate models capturing the dynamics during the transition from an exchange rate arrangement of floating rates into a currency union have been derived. Technically, these stochastic equilibrium models are diffusion processes which have to be estimated by discretely sampled observations. Using daily exchange rate data prior to the Greek EMU-entrance in January 2001 this paper develops a rigorous estimation procedure. The estimates provide statistical evidence of increased central bank intervention activities in the run-up to the Greek EMU entrance. Thus the modelling and estimation framework establishes an approach for detecting intervention phases in the absence of concrete intervention data.

Suggested Citation

  • Wilfling, Bernd & Trede, Mark, 2004. "Estimating Exchange Rate Dynamics with Diffusion Processes : An Application to Greek EMU Data," HWWA Discussion Papers 267, Hamburg Institute of International Economics (HWWA).
  • Handle: RePEc:zbw:hwwadp:267
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Görgens, Maik & Thulin, Måns, 2014. "Bias-correction of the maximum likelihood estimator for the α-Brownian bridge," Statistics & Probability Letters, Elsevier, vol. 93(C), pages 78-86.
    2. repec:spr:compst:v:69:y:2009:i:3:p:509-551 is not listed on IDEAS
    3. Jeff Hamrick & Murad Taqqu, 2009. "Testing diffusion processes for non-stationarity," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 69(3), pages 509-551, July.
    4. Zhao, Shoujiang & Zhou, Yanping, 2013. "Sharp large deviations for the log-likelihood ratio of an α-Brownian bridge," Statistics & Probability Letters, Elsevier, vol. 83(12), pages 2750-2758.

    More about this item

    Keywords

    Diffusion processes; estimation; exchange rates; EMU; central bank interventions;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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