Nonlinear Adjustments for Deviations from Equilibrium Exchange Rates by the Monetary Approach

• Main Authors: Kevin Yang, 楊凱文
• Other Authors: Yi-Nung Yang
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/jhcymr

碩士 === 中原大學 === 國際貿易研究所 === 92 === Recent empirical literatures analyze the deviations of the nominal exchange rate from the level suggested by economic fundamentals. These literatures demonstrate how transaction cost, technical analysts, or official interventions induce nonlinear adjustment of the deviations from equilibrium exchange rate by economic fundamentals. This study employ the STAR framework to analyze the dynamic behavior of deviations from monetary model, which may be advantageous relative to the standard TAR framework in which regime changes occur abruptly. Consistent with Terasvirta (1994), if an aggregated process is observed, which is the case with our data set here, regime changes may be smooth rather than discrete as long as heterogeneous economic agents do not act simultaneously even if the individually make dichotomous decisions. This study applies the STAR methodology to a sample of post-Bretton Woods quarterly data for the G7 countries. This study finds reveal that the deviations from equilibrium exchange rates by the monetary approach for the five countries show strong evidence of nonlinearity <a href="http://www.ntsearch.com/search.php?q=property&v=56">property</a>. The deviations of the nominal exchange rates from monetary fundamentals for United Kingdom, <a href="http://www.ntsearch.com/search.php?q=France&v=56">France</a>, <a href="http://www.ntsearch.com/search.php?q=Japan&v=56">Japan</a>, and Italy can be explained by the ESTAR model. However, Germany can be explained by LSTAR model. It is helpful to compute the roots of characteristic polynomial at given values of the transition function as in Terasvirta (1994). It considers two regimes: first, F=0, which corresponds to the lower regime in the LSTAR model, and the middle regime in the ESTAR model. Second, F=1, which corresponds to the upper regime in the LSTAR model, and the outer regime in the ESTAR model. The extreme values F=0 and F=1 are particularly. This study finds nonlinear mean reversion of the deviation of the exchange from economic fundamentals for most countries.