Non-linear characteristics of the sterling/European Currency Unit exchange rate: 1984-1992

David Chappell and Robert Eldridge

The European Journal of Finance, 1997, vol. 3, issue 2, 159-182

Abstract: The behaviour of the Sterling/European Currency Unit (ECU) exchange rate is examined both during the time before Britain joined the European exchange rate mechanism (ERM) and during the time of Britain's membership. During the latter period, a GARCH (1, 1) model fits the data well but during the pre-ERM period there is evidence of significant non-linear - possibly chaotic - structure in the GARCH residuals. Analysis of the dominant Lyapunov exponents and correlation dimension for the pre-ERM period suggests that the data generation process may be chaotic and this is reinforced by the highly significant BDS statistics obtained for this sample period.

Keywords: Sterlingecu Exchange Rate Non-LINEARITY (search for similar items in EconPapers)
Date: 1997
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DOI: 10.1080/135184797337507

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