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- Title
AN ANALYSIS OF THE DETERMINATION OF DEUTSCHE MARK/FRENCH FRANC EXCHANGE RATE IN A DISCRETE-TIME TARGET-ZONE MODEL.
- Authors
Pesaran, M. Hashem; Samiei, Hossein
- Abstract
The purpose of this paper is to provide an empirical evaluation of the role of expectations and target zones, and hence the implied non-linearities, in the determination of Deutsche mark/French franc exchange rate in the ERM. The analysis is based on thc estimation procedure developed in Pesaran and Samiei (1992a). Here, we employ a discrete-time framework with current expectations and estimate a number of exchange rate models under a target-zone. We also provide a comparison of the theoretical properties of the discrete-time and the continuous-time target-zone models. In particular we show that as in the continuous-time model, our discrete-time model also exhibits a deterministic S-shaped relationship between the expected values of the exchange rate and the fundamentals. The realised exchange rate and the fundamentals, however, are related via a stochastic S-shaped relationship. The plan of the paper is as follows. Section I examines the empirical literature on the subject. Section II presents and describes the model, its rational expectations solution and the estimation procedure. Section III discusses some standard exchange rate models, the estimation results and some further tests of the model. Finally, Section IV concludes by summarising the results and noting some possibilities for further research.
- Subjects
MARK (German currency); FRANC (French currency); NONLINEAR theories; NATIONAL currencies; FOREIGN exchange rates; MONETARY policy
- Publication
Economic Journal, 1992, Vol 102, Issue 411, p388
- ISSN
0013-0133
- Publication type
Article
- DOI
10.2307/2234523