An empirical reassessment of target-zone nonlinearities
In this paper we investigate the presence of target-zone nonlinearities in the Pound Sterling/German Mark exchange rate for the period of the UK European Exchange Rate Mechanism (ERM) membership using data with frequency of every 2 days. Tests against general nonlinear specifications as well as spec...
Guardado en:
| Autores principales: | , , |
|---|---|
| Formato: | JOUR |
| Materias: | |
| Acceso en línea: | http://hdl.handle.net/20.500.12110/paper_02615606_v20_n4_p533_Garratt |
| Aporte de: |
| Sumario: | In this paper we investigate the presence of target-zone nonlinearities in the Pound Sterling/German Mark exchange rate for the period of the UK European Exchange Rate Mechanism (ERM) membership using data with frequency of every 2 days. Tests against general nonlinear specifications as well as specifications consistent with a stochastic devaluation risk model of exchange rate target zones are carried out using recursive techniques. In addition, the significance of nonlinear effects is analysed within a recursive Bayesian framework. We find evidence of target-zone nonlinearities in the whole sample but the recursive analysis yields support for the presence of such nonlinearities only in specific subsamples. Our results imply that the reduction in the UK inflation rate was most likely a consequence of contractionary policies rather than of the expectational effects associated with the target zone. © 2001 Elsevier Science Ltd. |
|---|