Periodically Collapsing Rational Bubbles in Exchange Rates: A Markov-Switching Analysis for a Sample of Industrialised Markets
Jose Eduardo de A. Ferreira
Studies in Economics from School of Economics, University of Kent
This paper investigates the presence of periodically collapsing rational bubbles in exchange rates for a sample of industrialised countries. A periodically collapsing rational bubble is defined as an explosive deviation from economic fundamentals with distinct expansion and contraction phases in finite time. By using Markov-switching regime models we were not able to find robust evidence of a bubble driving the exchange rate away from fundamentals. Moreover, the results also revealed significant non-linearities and different regimes. The importance of these findings suggests that linear monetary models may not be appropriate to examine exchange rate movements.
Keywords: Foreign Exchange; Bubbles; Fundamentals; Markov-Switching; Assets (search for similar items in EconPapers)
JEL-codes: F31 F37 F41 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ukc:ukcedp:0604
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