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| Author: | Chappel, D. Eldridge, R. M. |
| Title: | Non-linear characteristics of the sterling/European currency Unit exchange rate: 1984-1992 |
| Journal: | European Journal of Finance
1997 : JUN, VOL. 3:2, p. 159-182 |
| Index terms: | EXCHANGE RATES EUROPEAN MONETARY SYSTEM POUND NON-LINEAR MODELS CHAOS |
| Language: | eng |
| Abstract: | This paper investigates the behavior of sterling/European Currency Unit (ECU) exchange rate during the time before Britain joined the European exchange rate mechanism (ERM) and during the time of Britain's membership. A GARCH (1,1) model fits the data well during the latter period but during the pre-ERM period there is evidence of non-linear, possibly chaotic structure in the GARCH residuals. Analysis of the dominant Lyapunov exponents and correlation dimension for the pre-ERM period shows that data generation process may be chaotic and this is reinforced by the BDS statistics. |
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