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Stochastic Segmented Trends in the Exchange Rate: The Greek Drachma/U.S. Dollar Rate, 1981-1998

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  • Dimitris G. Kirikos

Abstract

It is shown that when the Central Bank manages the interest rate differential through standard interventions, aimed at offsetting exogenous disturbances in the foreign exchange market, and agents do not observe the current state of policy, then a Markov switching regimes representation is appropriate for exchange rate movements. Indeed, using monthly data on the GRD/$ exchange rate, over the period 1981-1998, we obtain evidence that a stochastic segmented trends model identifies the tuning points of the GRD/$ exchange rate series, beats naive out-of-sample forecasts, and gives good predictions which capture the devaluation of the Greek currency in March 1998.

Suggested Citation

  • Dimitris G. Kirikos, 1998. "Stochastic Segmented Trends in the Exchange Rate: The Greek Drachma/U.S. Dollar Rate, 1981-1998," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 41-50, July - Se.
    • Handle: RePEc:ers:journl:v:i:y:1998:i:3:p:41-50
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    Cited by:

    1. Stamatopoulos T., 2001. "Trade Balance and Exchange-Rate for a Small Open Economy During the EMS: The Hellinic Case 1983:1-1995:12," European Research Studies Journal, European Research Studies Journal, vol. 0(3-4), pages 121-140, July - De.
    2. Stamatopoulos Theodoros, 2005. "Trade Balance and Exchange-Rate for a Small Open Economy during the EMS: The Hellenic Case 1983:1-1995:12," International Finance 0505012, University Library of Munich, Germany.

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