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Real Exchange Rates and Switching Regimes

Author

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  • Bergman, U. Michael

    (Department of Economics, Lund University)

  • Hansson, Jesper

    (Department of Economics, Lund University)

Abstract

We suggest that the real exchange rate between the major currencies in the post-Bretton Woods period can be described by a stationary, two state Markov switching AR(1) model. Based on the forecast performance, both in-sample and out-of-sample, we find that this model out-performs two competing models where the real exchange rate is non-stationary. We also find that the existence of different regimes, as in the Markov switching model, is consistent with the common finding of unit roots in the real exchange rate.

Suggested Citation

  • Bergman, U. Michael & Hansson, Jesper, 1999. "Real Exchange Rates and Switching Regimes," Working Papers 1999:4, Lund University, Department of Economics, revised 08 Jun 2000.
    • Handle: RePEc:hhs:lunewp:1999_004
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    References listed on IDEAS

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    Cited by:

    1. Mr. Gene L. Leon & Serineh Najarian, 2003. "Time-Varying Thresholds: An Application to Purchasing Power Parity," IMF Working Papers 2003/181, International Monetary Fund.
    2. Ms. Jayasri Dutta, 2002. "Dread of Depreciation: Measuring Real Exchange Rate Interventions," IMF Working Papers 2002/063, International Monetary Fund.
    3. Mr. Gene L. Leon & Serineh Najarian, 2003. "Asymmetric Adjustment and Nonlinear Dynamics in Real Exchange Rates," IMF Working Papers 2003/159, International Monetary Fund.
    4. Hyginus Leon & Serineh Najarian, 2005. "Asymmetric adjustment and nonlinear dynamics in real exchange rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 15-39.

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    More about this item

    Keywords

    Real exchange rates; Markov switching autoregressive models; forecasts; simulation;
    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
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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