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The role of the forecast-generating process in assessing asset market models of the exchange rate: a non-linear case

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  • Dimitris Kirikos

Abstract

This paper contains an assessment of three variants of the monetary approach to exchange rate determination when the dynamics of the information variables are described by a Markov switching regimes process which generates non-linear forecasts. A large information set is used and the empirical results are based on monthly data on six major US dollar exchange rates over the period 1978-90. The relevant cross-equation restrictions are tested statistically and the economic significance of the models is evaluated on the basis of appropriate volatility tests. The Markov model is compared with other popular stochastic processes.

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  • Dimitris Kirikos, 1996. "The role of the forecast-generating process in assessing asset market models of the exchange rate: a non-linear case," The European Journal of Finance, Taylor & Francis Journals, vol. 2(2), pages 125-144.
    • Handle: RePEc:taf:eurjfi:v:2:y:1996:i:2:p:125-144
    DOI: 10.1080/13518479600000001
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    Cited by:

    1. Arielle Beyaert & Juan rez-Castej, 2000. "Switching regime models in the Spanish inter-bank market," The European Journal of Finance, Taylor & Francis Journals, vol. 6(2), pages 93-112.
    2. Dimitris Kirikos, 2000. "Forecasting exchange rates out of sample: random walk vs Markov switching regimes," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 133-136.
    3. Arielle Beyaert & Juan Jose Perez-Castejon, 2009. "Markov-switching models, rational expectations and the term structure of interest rates," Applied Economics, Taylor & Francis Journals, vol. 41(3), pages 399-412.

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