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Tekijä: | Garratt, A. Psaradakis, Z. Sola, M. |
Otsikko: | An empirical reassessment of target-zone nonlinearities |
Lehti: | Journal of International Money and Finance
2001 : AUG, VOL. 20:4, p. 533-548 |
Asiasana: | EXCHANGE RATE MECHANISM EXCHANGE RATES UNITED KINGDOM INFLATION RATES |
Kieli: | eng |
Tiivistelmä: | In this paper the authors investigate the presence of target zone nonlinearities in the Pound Sterling/German Mark exchange rate for the period of the UK European Exchange Rate Mechanism (ERM) membership using data with frequency of every 2 days. Tests against general nonlinear specifications as well as specifications consistent with a stochastic devaluation risk model of exchange rate target zones are carried out using recursive techniques. The authors find evidence of target-zone nonlinearities in the whole sample but the recursive analysis yields support for the presence of such nonlinearities only in specific subsamples. The authors' results imply that the reduction in the UK rate was most likely a consequence of contractionary policies rather than of the expectational effects associated with the target zone. |
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