Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259854 
Year of Publication: 
2001
Series/Report no.: 
Working Paper No. 2001:21
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
The recent past has seen an increased interest in piecewise linear real exchange rate models. By invoking Heckscher's (1916) 'commodity points' it has been argued that a threshold autoregressive (TAR) model should be used to study movements in the real exchange rate. This paper examines the problems of fitting TAR models to real exchange rates. We find that the power of the tests for TAR behavior can be very low for realistic parameter settings. Moreover the confidence intervalls for the threshold parameter are too wide to be used for economic analysis.
Subjects: 
PPP
real exchange rate
threshold autoregression
JEL: 
C52
F31
Document Type: 
Working Paper

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