Does purchasing power parity hold sometimes? Regime switching in real exchange rates

Lee, Hwa-Taek; Yoon, Gawon

doi:10.1080/00036846.2012.661399

Cited by 7 publications

(4 citation statements)

References 50 publications

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“…It is commonly tested with standard unit root tests. In 2007 Lee and Yoon found after employing Hamilton-type Markov regime switching models on more than 100 years of data on five time serieses that the strength of PPP was changing over time (Lee et al 2007). It was found out that the PPP held locally and in current regime but not in general.…”

Section: Assumptions Of Neoliberal/monetarist and New Keynesian Thinkingmentioning

confidence: 99%

Asset Price Bubbles in the Perspective of New Keynesian Theory

Angerma

2013

SSRN Journal

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Section: Assumptions Of Neoliberal/monetarist and New Keynesian Thinkingmentioning

confidence: 99%

Asset Price Bubbles in the Perspective of New Keynesian Theory

Angerma

2013

SSRN Journal

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“…He finds that PPP holds for most of the Global Capital Flows, Time Varying Fundamentals And Transitional Exchange Rate Dynamics... period with some deviations. Lee and Yoon (2007) use a similar approach in which they employ the Hamiltonian regime switching model. They find that PPP holds locally within the regime.…”

Section: Introductionmentioning

confidence: 99%

“…Variations of UIP and PPP conditions motivated to search for nonlinear methods. Kanas (2006) and Lee and Yoon (2007) propose various nonlinear approaches. All these approaches report that there is a very strong evidence of relationship between UIP and PPP.…”

Section: Introductionmentioning

confidence: 99%

Küresel Sermaye Akımları, Zamana Göre Değişen Temeller ve Geçişken Kur Dinamikleri: Bir MS-VAR Yaklaşımı

Kal¹,

Gündüz²

2019

ISTJECON

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This paper studies whether dynamic relationship between exchange rate and economic and financial fundamentals vary depending on exchange rate is overvalued and undervalued with respect to its fundamental value. To achieve this, we implement two-state Markov Switching Vector Auto Regression (MSVAR) model with time varying transition probabilities to investigate whether the relationship among exchange rate, interest rate and inflation dynamics depend on overvaluation and undervaluation of exchange rates for the pre-crises period between years 1972-2009. We govern the transition between the undervalued and overvalued states by using Sharpe Ratios of debt and equity investments of the currency to assess whether risk adjusted returns induce overvaluation or undervaluation of the currencies. We employ this model to the bilateral exchange rate, which is defined between US Dollar and four highly traded currencies (AUD, CAD, JPY, and UKS). We provide evidence that the relationship among these variables varies in terms of on magnitude, direction and statistical significance in between the overvalued and undervalued regimes. Furthermore, we show that risk adjusted excess debt and equity returns influence the overvaluation and the undervaluation of the currencies.

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“…The third kind of signal (RGWS) is represented by the Markov regime-switching model [25][26][27][28][29][30][31], where the raw signal may undergo significant structural changes across its lifetime due to variability in its underlying probability transition matrix. Therefore, the signal, which is a combination of Eqs.…”

Section: The Second Kind Of Signal (Rws) Ismentioning

confidence: 99%

Signal Optimal Smoothing by Means of Spectral Analysis

Travaglini¹

2017

Advances in Statistical Methodologies and Their Application to Real Problems

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This chapter introduces two new empirical methods for obtaining optimal smoothing of noise-ridden stationary and nonstationary, linear and nonlinear signals. Both methods utilize an application of the spectral representation theorem (SRT) for signal decomposition that exploits the dynamic properties of optimal control. The methods, named as SRT1 and SRT2, produce a low-resolution and a high-resolution filter, which may be utilized for optimal long-and short-run tracking as well as forecasting devices. Monte Carlo simulation applied to three broad classes of signals enables comparing the dual SRT methods with a similarly optimized version of the well-known and reputed empirical Hilbert-Huang transform (HHT). The results point to a more satisfactory performance of the SRT methods and especially the second, in terms of low and high resolution as compared to the HHT for any of the three signal classes, in many cases also for nonlinear and stationary/nonstationary signals. Finally, all of the three methods undergo statistical experimenting on eight select real-time data sets, which include climatic, seismological, economic and solar time series.

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Does purchasing power parity hold sometimes? Regime switching in real exchange rates

Cited by 7 publications

References 50 publications

Asset Price Bubbles in the Perspective of New Keynesian Theory

Asset Price Bubbles in the Perspective of New Keynesian Theory

Küresel Sermaye Akımları, Zamana Göre Değişen Temeller ve Geçişken Kur Dinamikleri: Bir MS-VAR Yaklaşımı

Signal Optimal Smoothing by Means of Spectral Analysis

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