Non-linear dependence in inter-war exchange rates: some further evidence

David McMillan and Alan Speight

Applied Economics Letters, 2002, vol. 9, issue 6, 359-364

Abstract: This paper reconsiders the time-series properties of inter-war pound-franc and pound-dollar exchange rate returns in the context of a smooth transition variant of the threshold autoregressive model. It is found that autoregressive structure in returns is largely confined to values in proximity with thresholds which are possibly associated with market intervention points or market sentiment. Under joint estimation in conjunction with GARCH models of time-varying conditional volatility, these models satisfactorily capture all non-linearity in the data, and in the case of pound-dollar returns provide out-of-sample forecasts superior to alternative linear and non-linear models previously considered in the literature.

Date: 2002
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DOI: 10.1080/13504850110086017

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