Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/72646
Authors: 
Ahrens, Ralf
Reitz, Stefan
Year of Publication: 
2003
Series/Report no.: 
CFS Working Paper 2003/11
Abstract: 
In this study a regime switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The c&f model is tested against alternative regime switching specifications applying likelihood ratio tests. Nested atheoretical models like the popular segmented trends model suggested by Engel and Hamilton (1990) are rejected in favour of the multi agent model. Moreover, the c&f regime switching model seems to describe the data much better than a competing regime switching GARCH(1,1) model. Finally, our findings turned out to be relatively robust when estimating the model in subsamples. The empirical results suggest that the model is able to explain daily DM/Dollar forward exchange rate dynamics from 1982 to 1998.
Subjects: 
exchange rates
multi agent models
regime-switching
JEL: 
F31
C32
G12
G15
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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