Altavilla, Carlo and de Grauwe, Paul (2010) Non-linearities in the relation between the exchange rate and its fundamentals. International Journal of Finance and Economics, 15 (1). pp. 1-12. ISSN 1076-9307
Abstract
We develop a simple theoretical model in which chartists and fundamentalists interact. The model predicts the existence of different regimes, and thus non-linearities in the link between the exchange rate and its fundamentals. We test the model empirically by adopting a Markov-switching vector error correction model. The results suggest the presence of non-linear mean reversion in the nominal exchange rate process. The implications are that different sets of macroeconomic fundamentals act as driving forces of the exchange rates during different time periods.
| Item Type: | Article |
|---|---|
| Official URL: | http://onlinelibrary.wiley.com/journal/10.1002/%28... |
| Additional Information: | © 2010 John wiley & Sons |
| Library of Congress subject classification: | H Social Sciences > HG Finance J Political Science > JZ International relations |
| Journal of Economic Literature Classification System: | F - International Economics > F3 - International Finance > F31 - Foreign Exchange |
| Sets: | Departments > European Institute Collections > Economists Online |
| Date Deposited: | 05 Oct 2012 14:17 |
| URL: | http://eprints.lse.ac.uk/46609/ |
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