Compares the covered-uncovered interest rate parity of the U.S. dollar and the Swiss franc including the programming routines, algorithms and applications in MATLAB, RATS and EVIEWS.
Written in 2008; 8,910 words; 21 sources; APA; $ 186.95
Paper Summary:
This paper examines the covered and uncovered interest parity between U.S. dollar and Swiss franc by first using simple summary statistics for the spot and forward rates as the mean, kurtosis, skewness and standard deviation. The paper then presents the covered interest and uncovered parity hypothesis and applies tests to examine its validation, as deviations from covered interest parity, regression analysis, threshold autoregression and exponential transition autoregression. Based on this extensive research, the paper rejects these covered and uncovered interest parity hypotheses.
Table of Contents:
Introduction
Literature Review
Data
Summary Statistics
Random Walk
Unit Root and Stationary Tests
Covered Interest Rate Parity
Linear Tests
Non Linear Tests 1
Threshold Autoregressive (TAR) Models
Smoothing Transition Autoregressive (STAR) Models
Uncovered Interest Rate Parity
Vector Error-Equilibrium Correction Model (VECM)
Impulse Responses
Threshold Vector Error Correction Model
Dynamic OLS (DOLS)
Conclusions
Appendix: Program Procedure Routine for TSAY Test of TAR Nonlinearities in winRATS 6.0
Appendix: Program Procedure Routine for AR(1)-TAR Estimation in winRATS 6.0
Appendix: Test for Linearity against ESTAR and LSTAR and Secification Test between ESTAR and LSTAR selection in winRATS 6.0
Appendix: Program Procedure Routine for AR(1)-LSTAR-GARCH(1,1) Estimation in Eviews 6.0
Appendix: Program Procedure Routine for AR(1)-LSTAR-OLS Estimation in Eviews 6.0
Appendix: Program Procedure Routine for AR(1)-ESTAR-OLS Estimation in Eviews 6.0
Appendix: A Different Procedure Routinefor AR(1)-ESTAR-OLS Estimation in Eviews 6.0
Appendix: MATLAB Routines for Grid Search and STAR Estimation
Instructions
MATLAB Routine for Grid Search on STAR Models
MATLAB Routine for STAR Models Estimation with Various Methods
From the Paper:
"Descriptive statistics for the spot and three-monthly and six-monthly forward exchange rates returns are reported in table 1. We observe that in all cases negative mean returns are observed, but one might say that are very close to zero. Also in both three rates returns negative skewness is presented, but kurtosis is very close to three, as is defined by the normal distribution. Based on the Jarque-Bera statistics the hypothesis of normality for spot and forward exchange rates is not rejected."
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