Testing the bounds: Empirical behavior of target zone fundamentals
J. Miller ()
Economic Modelling, 2011, vol. 28, issue 4, 1782-1792
Standard target zone exchange rate models are based on nonlinear functions of unobserved economic fundamentals, which are assumed to be bounded, similarly to the target zone exchange rates themselves. Using a novel estimation and testing strategy, I show how this key but often overlooked assumption may be tested. Empirical results cast doubt on its validity in practice, providing a reason for well-documented empirical difficulties of these models in the literature.
Keywords: Target; zone; exchange; rates; Economic; fundamental; Unscented; Kalman; filter; Rescaled; range; statistic (search for similar items in EconPapers)
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Working Paper: Testing the Bounds: Empirical Behavior of Target Zone Fundamentals (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:4:p:1782-1792
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