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Exchange rate dynamics in integrated markets

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  • Maria Aguirre
  • Paul Kroopkin

Abstract

This paper intends to formalize the behavior of exchange rate dynamics in integrated markets. The decomposition of the exchange rate behavior in different time frequencies suggests that both stochastic and fundamental processes as well as exogenous random shocks are present in the determination of the nominal exchange rate dynamics in integrated countries. A stochastic process within a potential well captures all the elements observed in the data. In addition, the mathematical solutions shed some light on the relationship between the stochastic process and the drift found in the literature. Finally, this model provides an alternative to the Standard Target Zone Stochastic Model thus far used to analyze the exchange rate dynamics in integrated markets. Copyright International Atlantic Economic Society 1997

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  • Maria Aguirre & Paul Kroopkin, 1997. "Exchange rate dynamics in integrated markets," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 3(3), pages 269-280, August.
    • Handle: RePEc:kap:iaecre:v:3:y:1997:i:3:p:269-280:10.1007/bf02294913
    DOI: 10.1007/BF02294913
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    Cited by:

    1. Aguirre, Maria Sophia, 1999. "Forward discount dynamics in integrated markets," International Review of Economics & Finance, Elsevier, vol. 8(1), pages 87-104, January.

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