Testing the Unbiased Forward Exchange Rate Hypothesis Using a Markov Switching Model and Instrumental Variables
Fabio Spagnolod (),
Zacharias Psaradakis and
Martin Sola
Public Policy Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University
Abstract:
This paper develops a model for the forward and spot exchange rate which allows for the presence of a Markov switching risk premium in the forward market and considers the issue of testing for the unbiased forward exchange rate (UFER) hypothesis. Using US/UK data, it is shown that the UFER hypothesis cannot be rejected provided that instrumental variables are used to account for within-regime correlation between explanatory variables and disturbances in the Markov switching model on which the test is based.
Pages: 18 pages
Date: 2003-02
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-ifn and nep-lam
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Related works:
Journal Article: Testing the unbiased forward exchange rate hypothesis using a Markov switching model and instrumental variables (2005) 
Journal Article: Testing the unbiased forward exchange rate hypothesis using a Markov switching model and instrumental variables (2005) 
Working Paper: Testing the Unbiased Forward Exchange Rate Hypothesis Using a Markov Switching Model and Instrumental Variables (2003) 
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Persistent link: https://EconPapers.repec.org/RePEc:bru:bruppp:03-15
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