Identification of Non Linear Dependence Episodes in the Mexican Peso

This document identifies non linear dependence events in the Mexican exchange rate (Mexican peso/U.S. Dollar), between January 1995 and September 2010. For this purpose the Hinich Portmanteau test, which uses a high frequency test to detect nonlinear episodes through small window functions, is used. An explanation of events that could lead the nonlinear behavior and the non linear dependency of the exchange rate series is provided. The detection of such non-linear episodes may help to explain the difficulty in forecasting this type of series