TAR models and real exchange rates

Martin Johansson
Additional contact information
Martin Johansson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

No 2001:21, Working Papers from Lund University, Department of Economics

Abstract: The recent past has seen an increased interest in piecewise linear real exchange rate models. By invoking Heckscher's (1916) 'commodity points' it has been argued that a threshold autoregressive (TAR) model should be used to study movements in the real exchange rate. This paper examines the problems of fitting TAR models to real exchange rates. We find that the power of the tests for TAR behavior can be very low for realistic parameter settings. Moreover the confidence intervalls for the threshold parameter are too wide to be used for economic analysis.

Keywords: PPP; real exchange rate; threshold autoregression (search for similar items in EconPapers)
JEL-codes: C52 F31 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2001-11-14
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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