On the Estimation of Euler Equations in the Presence of a Potential Regime Shifts

Pentti Saikkonen and Antti Ripatti ()

Studies in Economics and Finance from Bank of Finland

Abstract: The concept of a peso problem is formalized in terms of a linear Euler equation and a nonlinear marginal model describing the dynamics of the exogenous driving process. It is shown that, using a threshold autoregressive model as a marginal model, it is possible to produce time-varying peso premia. A Monte Carlo method and a method based on the numerical solution of integral equations are considered as tools for computing conditional future expectations in the marginal model. A Monte Carlo study illustrates the poor performance of the generalized method of moment (GMM) estimator in small and even relatively large samples. The poor performance is particularly acute in the presence of a peso problem but is also serious in the simple linear case.

Keywords: CURRENCIES; ECONOMIC MODELS (search for similar items in EconPapers)
JEL-codes: C68 C50 C52 (search for similar items in EconPapers)
Date: 1999
References: Add references at CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: On the Estimation of Euler Equations in the Presence of a Potential Regime Shift (2000)
Working Paper: On the Estimation of Euler Equations in the Presence of a Potential Regime Shift (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fth:bfsefi:6/99

Access Statistics for this paper

More papers in Studies in Economics and Finance from Bank of Finland
Address: Bank of Finland. Research Department. P.O. Box 160, FIN-00101, Helsinki, Finland.
Contact information at EDIRC.
Series data maintained by Thomas Krichel ().