 Non-linear exchange rate relationships: An automated model selection approach with indicator saturationThe North American Journal of Economics and Finance, 2016, vol. 37, issue C, 84-109 Abstract: This paper examines whether the explanatory power of exchange rate models can be improved by allowing for cross-country asymmetries and non-linear effects of fundamentals. Both appear to be crucial. The samples include the USD versus pound and yen from 1982:10 to 2013:10, and automated model selection is conducted with indicator saturation. Several non-linear effects are significant at 1%. Further, many of the indicators present in the linear models are eliminated once allowing for non-linearities; suggesting some of the structural breaks found in previous work were an artifact of the misspecified linear functional form. These conclusions are robust to estimation using principal components. Keywords: Exchange rate determination puzzle; Non-linearities; Cross-country asymmetries; Automated model selection; Structural breaks; Principal components (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:37:y:2016:i:c:p:84-109 DOI: 10.1016/j.najef.2016.03.009 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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