Title: Non-Linearities in the Relation Between the Exchange Rate and the Fundamentals
Authors: Altavilla, Carlo ×
De Grauwe, Paul #
Issue Date: 2010
Publisher: EuroJournals
Series Title: International Research Journal of Finance and Economics vol:15 issue:1 pages:1-21
Abstract: We develop a simple theoretical model in which chartists and fundamentalists interact. The model predicts the existence
of different regimes, and thus non-linearities in the link between the exchange rate and its fundamentals. We test the
model empirically by adopting a Markov-switching vector error correction model. The results suggest the presence of
non-linear mean reversion in the nominal exchange rate process. The implications are that different sets of
macroeconomic fundamentals act as driving forces of the exchange rates during different time periods. Copyright r
2008 John Wiley & Sons, Ltd.
ISSN: 1450-2887
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of International Economics, Leuven
× corresponding author
# (joint) last author

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