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2006 | Mathematical, econometrical and computational methods in finance and insurance | 27--37
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Modelling the PLN/EUR Exchange Rate - Long Term Relationships with Non-Linear Adjustment

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In the paper we consider modelling the PLN/EUR exchange rate with the help of linear long-term relationships with nonlinear adjustment. A nonlinear adjustment process makes it possible to explain the observed long lasting misalignment of exchange rates with the economic fundamentals. This misalignment is called in the literature an "exchange rate puzzle". In our paper different specifications of adjustment processes are considered: bilinear, ESTAR and SETAR. Firstly, we examine long-term relationships for the real exchange rate in Poland in the threshold cointegration and smooth transition cointegration frameworks. Besides, we also try to evaluate the influence of speculative behaviour on exchange rate movements. The investigation attempts to discriminate between two competing explanations of deviations of a currency from its long-term value: speculative bubbles and non-linear mean reverting dynamics. From an econometric point of view it involves applications of three tests: the threshold cointegration test of Enders and Siklos, the smooth transition cointegration test of Kapetanios, Shin and Snell and the b test for unit root bilinearity of Charemza, Lifshits and Makarova. These tests are accompanied by a battery of linearity tests applied to adjustment processes under scrutiny. (fragment of text)
  • Uniwersytet Mikołaja Kopernika w Toruniu
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