A Meta Model Analysis of Exchange Rate Determination*

Chrystalleni Aristidou, Kevin Lee () and Kalvinder Shields

A chapter in Essays in Honor of M. Hashem Pesaran: Prediction and Macro Modeling, 2022, vol. 43A, pp 199-215 from Emerald Group Publishing Limited

Abstract: A novel approach to modeling exchange rates is presented based on a set of models distinguished by the drivers of the rate and regime duration. The models are combined into a “meta model” using model averaging and non-nested hypothesis-testing techniques. The meta model accommodates periods of stability and slowly evolving or abruptly changing regimes involving multiple drivers. Estimated meta models for five exchange rates provide a compelling characterization of their determination over the last 40 years or so, identifying “phases” during which the influences from policy and financial market responses to news succumb to equilibrating macroeconomic pressures and vice versa.

Keywords: Exchange rates; structural uncertainty; regime uncertainty; model averaging; structural breaks; non-nested testing; C51; F31; F47 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-90532021000043a010

DOI: 10.1108/S0731-90532021000043A010

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