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A non-parametric analysis of ERM exchange rate fundamentals

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  • José Torres

Abstract

In this paper we present evidence concerning the number of common stochastic trends in three major ERM exchange rates. The results indicate the presence of a single common trend driving these currencies and from this we suggest that the common trend can be considered as the ERM non-parametric fundamentals for the three selected currencies. Using a non-parametric technique, the Alternating Conditional Expectations (ACE) algorithm, we obtain evidence of the existence of non-linearities for two out of three currencies with a functional form, related to the estimated non-parametric fundamentals, close to the S-shape given by the basic target zone model.
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  • José Torres, 2007. "A non-parametric analysis of ERM exchange rate fundamentals," Empirical Economics, Springer, vol. 32(1), pages 67-84, April.
    • Handle: RePEc:spr:empeco:v:32:y:2007:i:1:p:67-84
    DOI: 10.1007/s00181-006-0072-7
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    Cited by:

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    2. Yang Hu & Les Oxley, 2016. "Are there Bubbles in Exchange Rates? Some New Evidence from G10 and Emerging Markets Countries," Working Papers in Economics 16/05, University of Waikato.

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    More about this item

    Keywords

    Exchange rate fundamentals; Target zones; Common trends; ACE algorithm; F31;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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