A Non-parametric analysis of ERM exchange rate fundamentals

Jose Torres ()

No E2004/25, Economic Working Papers at Centro de Estudios Andaluces from Centro de Estudios Andaluces

Abstract: In this paper we present evidence concerning the number of common stochastic trends in three major ERM exchange rates. The results indicate the presence of a single common trend driving these currencies and from this we suggest that the common trend can be considered as the ERM non-parametric fundamentals for the three selected currencies. Using a non-parametric technique, the Alternating Conditional Expectations (ACE) algorithm, we obtain evidence of the existence of non-linearities for two out of three currencies with a functional form, related to the estimated non-parametric fundamentals, close to the S-shape given by the basic target zone model.

Keywords: Exchange rate fundamentals; target zones; common trends; ACE algorithm (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004
New Economics Papers: this item is included in nep-ifn
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Related works:
Journal Article: A non-parametric analysis of ERM exchange rate fundamentals (2007)
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