Three‐Regime Asymmetric STAR Modeling and Exchange Rate Reversion

Abstract

The breakdown of the Bretton Woods system and the adoption of generalized floating exchange rates ushered in a new era of exchange rate volatility and uncertainty. This increased volatility leads economists to search for economic models able to describe observed exchange rate behavior. In the present paper, we propose more general STAR transition functions that encompass both threshold nonlinearity and asymmetric effects. Our framework allows for a gradual adjustment from one regime to another and considers threshold effects by encompassing other existing models, such as TAR models. We apply our methodology to three different exchange rate data sets: one for developing countries and official nominal exchange rates, the second for emerging market economies using black market exchange rates, and the third for OECD economies. Copyright (c) 2010 The Ohio State University.

Identification and Estimation Issues in Exponential Smooth Transition Autoregressive Models

“…Similar issues are evident in Sarantis (), Taylor, Peel and Sarno (), Kilian and Taylor (), Kapetanios, Shin and Snell (), Sarno, Leon and Valente (), Paya and Peel (), Sollis (), Taylor and Kim (), Cerrato, Kim and Macdonald (), Pavlidis, Paya and Peel (), Beckmann, Berger and Czudaj () and many others. The study by Beckmann et al .…”

Identification and Estimation Issues in Exponential Smooth Transition Autoregressive Models

“…Similar issues are evident in Sarantis (1999), Taylor et al (2001), Kilian and Taylor (2003), Kapetanios et al (2003), Sarno et al (2006), Paya and Peel (2006), Sollis (2008), Taylor and Kim (2009), Cerrato et al (2010), Pavlidis et al (2011), Beckmann et al (2015) and many others. The study by Beckmann et al (2015) is particularly noteworthy to single out here, as the estimation results reported in Table 3 of their paper provide first hand empirical evidence of both estimation problems that we outline above.…”

Identification and Estimation Issues in Exponential Smooth Transition Autoregressive Models

“…Similar issues are evident in Sarantis (1999), Taylor et al (2001), Kilian and Taylor (2003), Kapetanios et al (2003), Sarno et al (2006), Paya and Peel (2006), Sollis (2008), Taylor and Kim (2009), Cerrato et al (2010), Pavlidis et al (2011), Beckmann et al (2015) and many others. The study by Beckmann et al (2015) is particularly noteworthy to single out here, as the estimation results reported in Table 3 of their paper provide first hand empirical evidence of both estimation problems that we outline above.…”