3-Regime symmetric STAR modeling and exchange rate reversion

Mario Cerrato, Hyunsok Kim and Ronald MacDonald

Working Papers from Business School - Economics, University of Glasgow

Abstract: The breakdown of the Bretton Woods system and the adoption of generalised floating exchange rates ushered in a new era of exchange rate volatility and uncer­tainty. This increased volatility lead economists to search for economic models able to describe observed exchange rate behavior. In the present paper we propose more general STAR transition functions which encompass both threshold nonlinearity and asymmetric effects. Our framework allows for a gradual adjustment from one regime to another, and considers threshold effects by encompassing other existing models, such as TAR models. We apply our methodology to three different exchange rate data-sets, one for developing countries, and official nominal exchange rates, and the second for emerging market economies using black market exchange rates and the third for OECD economies.

Keywords: unit root tests; threshold autoregressive models; purchasing power parity. (search for similar items in EconPapers)
JEL-codes: C16 C22 F31 (search for similar items in EconPapers)
Date: 2008-12, Revised 2009-02
New Economics Papers: this item is included in nep-cba, nep-ets, nep-ifn and nep-opm
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Working Paper: 3-Regime symmetric STAR modeling and exchange rate reversion (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2009_05

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