Exchange Rate Target Zone Models: A Bayesian Evaluation.
This paper develops a Bayesian approach to estimating exchange rate target zone models and rational expectations models in general. It also introduces a simultaneous-equation target zone model that incorporates stochastic realignment risk. Using FF/DM and IL/DM exchange rate data, we find that the signing of the 1987 Basle-Nyborg Agreement reduces both the magnitude and the likelihood of a central parity realignment, while the lagged exchange rate deviation from its central parity increases them. Furthermore, the interest rate policies and the monetary conditions of the participating countries signal a forthcoming realignment. In general, we are unable to improve upon a simple random walk model in out-of-sample exchange rate prediction by introducing target zone models.
Year of publication: |
1999
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Authors: | Li, Kai |
Published in: |
Journal of Applied Econometrics. - John Wiley & Sons, Ltd.. - Vol. 14.1999, 5, p. 461-90
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Publisher: |
John Wiley & Sons, Ltd. |
Saved in:
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