Markov switching regimes in a monetary exchange rate model

Frömmel, Michael; MacDonald, Ronald; Menkhoff, Lukas

doi:10.1016/j.econmod.2004.07.001

Cited by 99 publications

(45 citation statements)

References 37 publications

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“…We do not take logarithm for interest rate variables because they are in the form of percentage already. Note that, in Frommel, MacDonald, and Menkhoff [5], the variation is evaluated at annual change instead of monthly change.…”

Section: Methodsmentioning

confidence: 99%

Multiple Regime Models and Exchange Rate Forecasting

Chen¹

2006

Proceedings of the 9th Joint International Conference on Information Sciences (JCIS-06)

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We extend the basic random walk Markov-Switching model in two ways and evaluate the out-of-sample forecasting performance on the Japanese yen during 1995-2004. First, we estimate both a two-and also a three-regime Markov switching models. Second, we add four exogenous variables as suggested in the monetary theory. According to the modified DieboldMariano forecast equivalence test, the result shows that our modified models, a three-regime random walk model and a two-regime monetary model, outperform a simple random walk for the yen. However, the interpretation of coefficients in the two-regime monetary model is unclear and the exchange-rate disconnect puzzle still remains a subject for further investigation

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Section: Methodsmentioning

confidence: 99%

Multiple Regime Models and Exchange Rate Forecasting

Chen¹

2006

Proceedings of the 9th Joint International Conference on Information Sciences (JCIS-06)

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“…Several studies relate exchange rates and macroeconomic fundamentals in a MS context (see e.g. Marsh (2000), Bessec (2003), Sarno et al (2004) or Frömmel et al (2005)) or analyze spot and forward exchange rates comovements (see e.g. Clarida et al (2003)).…”

Section: Markov Switching Modelmentioning

confidence: 99%

Is exchange rate – Customer order flow relationship linear? Evidence from the Hungarian FX market

Lovcha

Pérez-Laborda

2013

Journal of International Money and Finance

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“…By the mean squared error criterion, the Markov Model did not produce superior forecasts to the RW. Frommel, Macdonald and Menkhoff (2005) used the real interest rate differential (RID) model which is an extended version of the Frankel-Bilson model by introducing Markov regime switches for three industrialized countries currencies (Germany, United Kingdom, Japan) relative to the United States dollar. They found the evidence of the relationship between exchange rates and the fundamentals.…”

Section: Literature Reviewmentioning

confidence: 99%