Abstract
This paper combines and generalizes a number of recent time series models of daily exchange rate series by using a SETAR model which also allows the variance equation of a GARCH specification for the error terms to be drawn from more than one regime. An application of the model to the French Franc/Deutschmark exchange rate demonstrates that out-of-sample forecasts for the exchange rate volatility are also improved when the restriction that the data it is drawn from a single regime is removed. This result highlights the importance of considering both types of regime shift (i.e. thresholds in variance as well as in mean) when analysing financial time series.
| Original language | English |
|---|---|
| Pages (from-to) | 135-143 |
| Number of pages | 9 |
| Journal | Journal of Forecasting |
| Volume | 20 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2001 |
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