Forecasting performance of exponential smooth transition autoregressive exchange rate models
This paper compares the forecasting performance of the Smooth Transition Autoregressive (STAR) model with the conventional linear Autoregressive (AR) and Simple Random Walk (SRW) models. The empirical analysis was conducted using quarterly data for the yen-based currencies of six major East Asian co...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Springer
2006
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| Online Access: | http://psasir.upm.edu.my/id/eprint/18311/ http://psasir.upm.edu.my/id/eprint/18311/1/Forecasting%20performance%20of%20exponential%20smooth%20transition%20autoregressive%20exchange%20rate%20models.pdf |
| _version_ | 1848843477105770496 |
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| author | Baharumshah, Ahmad Zubaidi Liew, Venus Khim Sen |
| author_facet | Baharumshah, Ahmad Zubaidi Liew, Venus Khim Sen |
| author_sort | Baharumshah, Ahmad Zubaidi |
| building | UPM Institutional Repository |
| collection | Online Access |
| description | This paper compares the forecasting performance of the Smooth Transition Autoregressive (STAR) model with the conventional linear Autoregressive (AR) and Simple Random Walk (SRW) models. The empirical analysis was conducted using quarterly data for the yen-based currencies of six major East Asian countries. We discovered strong evidence on nonlinear mean reversion in deviation from purchasing power parity (PPP). The results suggest that both the STAR and AR models outperform or at least match the performance of the SRW model. The results also show that the STAR model outperforms the AR model, its linear competitor in a 14-quarter forecast horizon. This finding is consistent with the emerging line of research that emphasizes the importance of allowing nonlinearity in the adjustment of exchange rate. |
| first_indexed | 2025-11-15T08:15:39Z |
| format | Article |
| id | upm-18311 |
| institution | Universiti Putra Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-15T08:15:39Z |
| publishDate | 2006 |
| publisher | Springer |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | upm-183112016-02-12T08:25:06Z http://psasir.upm.edu.my/id/eprint/18311/ Forecasting performance of exponential smooth transition autoregressive exchange rate models Baharumshah, Ahmad Zubaidi Liew, Venus Khim Sen This paper compares the forecasting performance of the Smooth Transition Autoregressive (STAR) model with the conventional linear Autoregressive (AR) and Simple Random Walk (SRW) models. The empirical analysis was conducted using quarterly data for the yen-based currencies of six major East Asian countries. We discovered strong evidence on nonlinear mean reversion in deviation from purchasing power parity (PPP). The results suggest that both the STAR and AR models outperform or at least match the performance of the SRW model. The results also show that the STAR model outperforms the AR model, its linear competitor in a 14-quarter forecast horizon. This finding is consistent with the emerging line of research that emphasizes the importance of allowing nonlinearity in the adjustment of exchange rate. Springer 2006-04 Article PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/18311/1/Forecasting%20performance%20of%20exponential%20smooth%20transition%20autoregressive%20exchange%20rate%20models.pdf Baharumshah, Ahmad Zubaidi and Liew, Venus Khim Sen (2006) Forecasting performance of exponential smooth transition autoregressive exchange rate models. Open Economies Review, 17 (2). pp. 235-251. ISSN 0923-7992; ESSN: 1573-708X http://link.springer.com/article/10.1007%2Fs11079-006-6812-7 10.1007/s11079-006-6812-7 |
| spellingShingle | Baharumshah, Ahmad Zubaidi Liew, Venus Khim Sen Forecasting performance of exponential smooth transition autoregressive exchange rate models |
| title | Forecasting performance of exponential smooth transition autoregressive exchange rate models |
| title_full | Forecasting performance of exponential smooth transition autoregressive exchange rate models |
| title_fullStr | Forecasting performance of exponential smooth transition autoregressive exchange rate models |
| title_full_unstemmed | Forecasting performance of exponential smooth transition autoregressive exchange rate models |
| title_short | Forecasting performance of exponential smooth transition autoregressive exchange rate models |
| title_sort | forecasting performance of exponential smooth transition autoregressive exchange rate models |
| url | http://psasir.upm.edu.my/id/eprint/18311/ http://psasir.upm.edu.my/id/eprint/18311/ http://psasir.upm.edu.my/id/eprint/18311/ http://psasir.upm.edu.my/id/eprint/18311/1/Forecasting%20performance%20of%20exponential%20smooth%20transition%20autoregressive%20exchange%20rate%20models.pdf |