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A time series model for an exchange rate in a target zone with applications

Author

Listed:
  • Lundbergh, Stefan

    (Skandia Life Insurance Company Ltd)

  • Teräsvirta, Timo

    (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

In this paper we introduce a flexible target zone model that is capable of characterizing the dynamic behaviour of an exchange rate implied by the original target zone model of Krugman (1991) and its modifications. Our framework also enables the modeller to estimate an implicit target zone if it exists. A modelling cycle consisting of specification, estimation, and evaluation stages is constructed. The model is fitted to series of daily observations of the Swedish and Norwegian currency indices and the estimated models are evaluated.

Suggested Citation

  • Lundbergh, Stefan & Teräsvirta, Timo, 2003. "A time series model for an exchange rate in a target zone with applications," SSE/EFI Working Paper Series in Economics and Finance 533, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0533
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Autoregressive conditional heteroskedasticity; exchange rate dynamics; nonlinear modelling; smooth transition autoregression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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