Structural Breaks in the Real Exchange Rate Adjustment Mechanism Laurence Copeland and Saeed Heravi We show that the behaviour of the real exchange rates of the UK, Germany, France and Japan has been characterised by structural breaks which changed the adjustment mechanism. In the context of a Time-Varying Smooth Transition AutoRegressive of the kind introduced by Lundbergh et al (2003), we sho...

This paper proposes a new unit root test against a non-linear exponential smooth transition autoregressive (ESTAR) model. The new test is build upon the non-standard testing approach of Abadir and Distaso (2007) who introduce a class of modified statistics for testing joint hypotheses when one of the alternatives is one-sided. In a Monte Carlo study the popular Dickey-Fuller type test proposed ...

Outliers and nonlinearity may easily be mistaken. This paper uses Monte Carlo methods to examine and compare the behavior of two competing speciication procedures for Smooth Transition AutoRegressive STAR] models under various diierent circumstances (linear and nonlinear data generating processes, with and without outlier contamination). The extensive simulation evidence demonstrates that the u...

In a dataset of weekly observations over the period since 1990, the discount on UK closed-end mutual funds is shown to be nonstationary, but reverting to a nonzero long run mean. Although the long run discount could be explained by factors like management expenses etc., its short run ‡uctuations are harder to reconcile with an arbitrage-free equilibrium. In time series terms, there is evidence ...

This paper investigates several empirical issues regarding quasimaximum likelihood estimation of Smooth Transition Autoregressive (STAR) models with GARCH errors, specifically STAR-GARCH and STAR-STGARCH. Convergence, the choice of different algorithms for maximising the likelihood function, and the sensitivity of the estimates to outliers and extreme observations, are examined using daily data...

The present paper examines the microfoundations of how households form subjective expectations about the macroeconomy. In particular, we are interested in the role of perceived news. The paper outlines a theoretical model where households may give unequal importance (or weights) to „good‟ and „bad‟ news. We also consider whether the relationship is state-varying and has any structural changes. ...