International Finance Discussion Papers (IFDP)
November 1989
An Empirical Assessment of Non-Linearities in Models of Exchange Rate Determination
Richard A. Meese and Andrew K. Rose
Abstract:
This paper examines the empirical relation between nominal exchange rates and macroeconomic fundamentals for five major OECD countries. Five theoretical models of exchange rate determination are considered. Potential non-linearities are examined using a variety of parametric and non-parametric techniques. We find that the poor explanatory power of the models considered cannot be attributed to non-linearities arising from time deformation or improper functional form.
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