Switching between chartists and fundamentalists: a Markov regime-switching approach

Vigfusson, Robert J.

doi:10.1002/(sici)1099-1158(199710)2:4<291::aid-jfe55>3.0.co;2-m

Cited by 88 publications

(51 citation statements)

References 11 publications

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“…The choice of the bi-weekly frequency for the data should therefore be seen as a compromise. It more or less matches the frequency that are typically used in previous estimations of this type of models (Vigfusson (1996), Manzan and Westerhoff, 2007). 10 The estimated model is a two-regime Markov switching model.…”

Section: The Basic Chartists-fundamentalists Modelmentioning

confidence: 91%

“…The first one is the choice of an empirical measure of the fundamental equilibrium exchange rate f t that plays an important role in the definition of the fundamentalist regime. Previous work (Vigfusson, 1996;Manzan and Westerhoff, 2007) has typically used the PPP value as a measure of the equilibrium exchange rate. However, while interesting, PPP levels capture only one type of equilibrium and rely on the relevance of the law of one price.…”

Section: Preliminary Investigationmentioning

confidence: 99%

“…It reflects the complex dynamics produced by the interaction of two types of agents whose existence has been empirically supported by the results of surveys of practitionners (Cheung and Chinn, 2001 for instance). As originally done by Vigfusson (1996), the use of a two-regime Markov-switching regime allows to conduct an econometric analysis consistent with the theoretical assumption of two types of agents. Our analysis of central bank intervention in the context of a chartist-fundamentalist framework is related to the recent analysis of Reitz and Taylor (2008) but exhibits noticeable and important differences.…”

Section: Introductionmentioning

confidence: 99%

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The impact of FX central bank intervention in a noise trading framework

Beine

Grimaldi

2009

Journal of Banking & Finance

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a b s t r a c tIn this paper, we analyse the effectiveness of the direct central bank interventions using a new effectiveness criterion. To this aim, we investigate the effects of central bank interventions (CBI) in a noise trading model with chartists and fundamentalists. We first estimate a model in which chartists extrapolate past returns and fundamentalists forecast a mean reverting dynamics of the exchange rate towards a fundamental value. Then, we investigate the role of central bank interventions for explaining the switching properties between the two types of agents. We find evidence that in the medium run, interventions increase the proportion of fundamentalists and therefore exert some stabilizing influence on the exchange rate.

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Section: The Basic Chartists-fundamentalists Modelmentioning

confidence: 91%

Section: Preliminary Investigationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The impact of FX central bank intervention in a noise trading framework

Beine

Grimaldi

2009

Journal of Banking & Finance

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“…As stated in Clarida et al (2001), the Markov regimeswitching model suggested by Engel and Hamilton (1990) and developed further by, among others, Engel (1994), Vigfusson (1997), and Dewachter (2001) is a natural candidate to characterize exchange rate behavior. In our model, the conditional mean µ t and the conditional variance h t of exchange rate changes e t are allowed to follow two different regimes-a chartist and a fundamentalist regime-indicated by an unobservable state variable S t .…”

Section: A Markov Regime-swichting Specificationmentioning

confidence: 99%

Central Bank Intervention and Heterogeneous Exchange Rate Expectations: Evidence from the Daily DEM/US-Dollar Exchange Rate

Reitz

2005

Open Econ Rev

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In this paper we propose a generalisation of the noise trader transmission mechanism to examine the impact of central bank intervention on exchange rates. Within a heterogeneous expectation exchange rate model intervention operations are supposed to provide support for chartist or fundamentalist forecasts, which forces portfolio managers to adjust their foreign currency positions. The empirical examination of the hypothesis is done by applying a Markov regime-switching approach to daily DEM/US-dollar exchange rates and intervention data of the Deutsche Bundesbank and the Federal Reserve from 1979 to 1992. It is shown that chartist’s profits rose whenever these central banks intervened on the foreign exchange market. This is not true for those who follow a fundamentalist approach. Copyright Springer Science + Business Media, Inc. 2005exchange rates, intervention, regime-switching,

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“…Une originalité de l'article est de faire dépendre les probabilités de transition de la position du taux de change à l'intérieur des bandes du SMe : la probabilité de transition est d'autant plus grande que le taux de change est proche des bandes du SMe. Vigfusson (1997) étend le modèle d'anticipation mixte chartiste-fondamentaliste du taux de change proposé par Frankel et Froot (1988) en considérant un modèle markovien qui décrit l'évolution au cours du temps de l'importance relative des deux groupes de prévisionnistes. Sur le plan prédictif, de nombreuses études signalent les pauvres performances du modèle MS comparées aux diverses approches alternatives.…”

Section: Modèles à Changements Markoviensunclassified

Économétrie des modèles à changement de régimes : un essai de synthèse

Uctum

2008

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Ce travail a pour objectif de dresser un bilan de la littérature sur la modélisation et l’estimation du changement structurel en économie. La présentation des approches suit l’ordre décroissant d’information à la disposition du modélisateur quant à la cause du changement de régimes. Une première catégorie de modèles suppose connue la règle qui gouverne la sélection du régime à chaque instant, cette règle pouvant être déterministe comme dans les modèles à seuils (TAR, STAR) ou stochastique comme dans les modèles à changements endogènes. Dans une classe alternative de modèles, la règle de sélection non observable est remplacée par des probabilités constantes inconnues associées aux régimes, lesquelles sont non conditionnelles à l’information passée dans le cas des modèles à mélange de distributions et conditionnelles au régime précédent dans les modèles à changements markoviens. La discussion comparative des différentes approches est complétée par un survol des études empiriques.This paper aims to survey the literature on modeling and estimating the structural change in economy. The alternative approaches are presented following the decreasing order of information available to the investigator about the cause of the regime change. One class of models specifies the rule governing the regime selection whether the latter is deterministic as in threshold autoregressive regression models and smooth transition autoregressive models or stochastic as in endogenous change models. Another class includes models where the unobservable selection rule is replaced by a set of unknown constant probabilities associated with the regimes: these probabilities are unconditional on past information in the case of mixture normal distributions models and conditional on past regime in Markov-switching models. The comparative presentation is completed by an overview of the empirical studies

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Switching between chartists and fundamentalists: a Markov regime-switching approach

Cited by 88 publications

References 11 publications

The impact of FX central bank intervention in a noise trading framework

The impact of FX central bank intervention in a noise trading framework

Central Bank Intervention and Heterogeneous Exchange Rate Expectations: Evidence from the Daily DEM/US-Dollar Exchange Rate

Économétrie des modèles à changement de régimes : un essai de synthèse

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