Testing for two-regime threshold cointegration in the parallel and official markets for foreign currency in Greece

Abstract

This paper models the short-run as well as the long-run relationship between the parallel and official markets for US dollars in Greece in a threshold VECM framework. Modeling exchange rates within this context can be motivated by the fact that the transition mechanism is controlled by the parallel market premium. The results show that linearity is rejected in favour of a TVECM specification, which forms statistically an adequate representation of the data. Two regimes are implied by the model; the "typical" regime, which applies most of the time and the "unusual" one associated with economic and political events t hat took place in Greece during the 1980s. Another implication is that in the parallel exchange rate there are strong asymmetries between the two regimes in the speed of adjustment to the long-run equilibrium. Finally, Granger causality runs from the official to the parallel market in both regimes but not vice versa.

Money‐output Causality Revisited – A Bayesian Logistic Smooth Transition VECM Perspective*

“…Aside from the STVECM, various types of nonlinear VECM have been proposed in the literature, for instance, the threshold autoregressive types of models (see Hansen and Seo, 2002;Aslanidis and Kouretas, 2005), the Markov switching types of models (see Francis and Owyang, 2005;Sugita, 2008), the autoregressive conditional root models (see Bec and Rahbek, 2004;Bec, Rahbek and Shephard, 2008) and the mixture autoregressive models (see Saikkonen, 2005;Fong, Li and Wong, 2007). Considering that regime changes in macroeconomic data can be either gradual or abrupt, in this article, we adopt an STVECM since it allows for both the smooth and discrete adjustment mechanisms, while most of the other frameworks tend to suggest discontinuous regime changes.…”

A Study of the Regime Switching in the Relationship between the Tunisian Exchange Rates and the Fundamental Economic Variables: A Further Investigation Using the Threshold Cointegration Theory

“…However, proposed a more general approach than that of Balke and Fomby [4] in which they introduced the threshold cointegration theory within a multivariate framework with the hypothesis of a known cointegration vector. Another specification of the threshold cointegration theory, which presents its characteristic compared to the other approaches, is that it adopts the formulation suggested initially by Hansen and Seo [22] and reexposed by Aslanidis and Kouretas [24], these authors, indeed, exposed the threshold cointegration within a multivariate framework. Obviously, Hansen and Seo [22] examined the two regimes threshold cointegration theory through considering a threshold vector errors correction model (TVECM).…”