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Exchange rates and Markov switching dynamics

Cheung, Y W and Erlandsson, Ulf LU (2005) In Journal of Business & Economic Statistics 23(3). p.314-320
Abstract
This article presents a systematic and extensive empirical study on the presence of Markov switching dynamics in three dollar-based exchange rates. A Monte Carlo approach is adopted to circumvent the statistical inference problem inherent to the test of regime-switching behavior. Two data frequencies, two sample periods, and various specifications are considered. Quarterly data yield inconclusive evidence; the test rejects neither random walk nor Markov switching. Monthly data, on the other hand, offer unambiguous evidence of the presence of Markov switching dynamics. The results suggest that data frequency, in addition to sample size, is crucial for determining the number of regimes.
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
sampling, Monte Carlo test, regime switching, exchange rate dynamics, frequency
in
Journal of Business & Economic Statistics
volume
23
issue
3
pages
314 - 320
publisher
American Statistical Association
external identifiers
  • wos:000235043100006
  • scopus:22544463975
ISSN
0735-0015
DOI
10.1198/073500104000000488
language
English
LU publication?
yes
id
0bff1127-e0f5-48c0-927d-cef23218a5e5 (old id 209518)
date added to LUP
2007-08-10 11:15:56
date last changed
2017-08-20 03:45:48
@article{0bff1127-e0f5-48c0-927d-cef23218a5e5,
  abstract     = {This article presents a systematic and extensive empirical study on the presence of Markov switching dynamics in three dollar-based exchange rates. A Monte Carlo approach is adopted to circumvent the statistical inference problem inherent to the test of regime-switching behavior. Two data frequencies, two sample periods, and various specifications are considered. Quarterly data yield inconclusive evidence; the test rejects neither random walk nor Markov switching. Monthly data, on the other hand, offer unambiguous evidence of the presence of Markov switching dynamics. The results suggest that data frequency, in addition to sample size, is crucial for determining the number of regimes.},
  author       = {Cheung, Y W and Erlandsson, Ulf},
  issn         = {0735-0015},
  keyword      = {sampling,Monte Carlo test,regime switching,exchange rate dynamics,frequency},
  language     = {eng},
  number       = {3},
  pages        = {314--320},
  publisher    = {American Statistical Association},
  series       = {Journal of Business & Economic Statistics},
  title        = {Exchange rates and Markov switching dynamics},
  url          = {http://dx.doi.org/10.1198/073500104000000488},
  volume       = {23},
  year         = {2005},
}