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Author: | Jamaleh, A. |
Title: | Explaining and forecasting the euro/dollar exchange rate through a non-linear threshold model |
Journal: | European Journal of Finance
2002 : DEC, VOL. 8:4, p. 422-448 |
Index terms: | Dollars Error correction models Euro Exchange rates Forecasting Non-linear models |
Language: | eng |
Abstract: | A linear econometric error correction model (ECM) model is built, based on short interest rates, gross domestic product (GDP) growth expectations and inflation differentials, in order to explain the euro/dollar exchange rate dynamics and provide reliable forecasts. This specification performs well. However, the introduction of non-linear threshold dynamics provides a better understanding of "abnormal" features other than deviations from long-run equilibrium levels, allowing for the possibility of asymmetric behaviour. Empirical evidence of this is found in the actual dynamics of the euro. |
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