Zörner, Thomas, Huber, Florian. 2019. Threshold cointegration in international exchange rates: A Bayesian approach. International Journal of Forecasting. 35 (2), 458-473.
BibTeX
Abstract
This paper considers Bayesian estimation of the threshold vector error correction (TVECM) model in moderate to large dimensions. Using the lagged cointegrating error as a threshold variable gives rise to additional difficulties that typically are solved by utilizing large sample approximations. By relying on Markov chain Monte Carlo methods, we are enabled to circumvent these issues and avoid computationally-prohibitive estimation strategies like the grid search. Due to the proliferation of parameters, we use novel global-local shrinkage priors in the spirit of Griffin and Brown (2010). We illustrate the merits of our approach in an application to five exchange rates vis-á-vis the US dollar by means of a forecasting comparison. Our findings indicate that adopting a non-linear modeling approach improves the predictive accuracy for most currencies relative to a set of simpler benchmark models and the random walk.
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Status of publication | Published |
---|---|
Affiliation | WU |
Type of publication | Journal article |
Journal | International Journal of Forecasting |
Citation Index | SSCI |
WU-Journal-Rating new | STRAT-C, VW-D, WH-B |
Language | English |
Title | Threshold cointegration in international exchange rates: A Bayesian approach |
Volume | 35 |
Number | 2 |
Year | 2019 |
Page from | 458 |
Page to | 473 |
Reviewed? | Y |
DOI | https://doi.org/10.1016/j.ijforecast.2018.07.012 |
Open Access | N |
Associations
- Projects
- Modeling and forecasting exchange rates in an unified econometric framework
- People
- Zörner, Thomas (Details)
- Huber, Florian (Former researcher)
- Organization
- Institute for Macroeconomics IN (Details)
- Research areas (ÖSTAT Classification 'Statistik Austria')
- 5323 Econometrics (Details)
- 5335 Political economic theory (Details)
- 5371 Macroeconomics (Details)