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Credibility in the EMS: new evidence using nonlinear forecastability tests

Author

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  • Fernando Fernández-Rodríguez
  • Simón Sosvilla-Rivero
  • Juan Martín-González

Abstract

This paper develops a test for target-zone credibility that makes use of nonlinear forecastable dependences in time series. The test procedure, based on nearest-neighbour forecasting methods, is applied to nine EMS currencies. The results suggest credibility for most of the EMS countries before the 1992 crisis, credibility losses in all countries (except Belgium and the Netherlands) after such crisis, and some credibility gains after the widening of the fluctuation bands in 1993.

Suggested Citation

  • Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero & Juan Martín-González, 2003. "Credibility in the EMS: new evidence using nonlinear forecastability tests," The European Journal of Finance, Taylor & Francis Journals, vol. 9(2), pages 146-168.
    • Handle: RePEc:taf:eurjfi:v:9:y:2003:i:2:p:146-168
    DOI: 10.1080/13518470110073685
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    Cited by:

    1. Francisco Ledesma-Rodríguez & Manuel Navarro-Ibáñezr & Jorge Pérez-Rodríguez & Simón Sosvilla-Rivero, "undated". "Implicit regimes for the Spanish Peseta/Deutschmark exchange rate," Working Papers 2005-21, FEDEA.
    2. Fernandez-Rodriguez, Fernando & Sosvilla-Rivero, Simon & Andrada-Felix, Julian, 1999. "Exchange-rate forecasts with simultaneous nearest-neighbour methods: evidence from the EMS," International Journal of Forecasting, Elsevier, vol. 15(4), pages 383-392, October.
    3. S. Sosvilla-Rivero & R. Maroto-Illera, 2003. "Regimen changes and duration in the European Monetary System," Applied Economics, Taylor & Francis Journals, vol. 35(18), pages 1923-1933.
    4. Francisco Ledesma-Rodriguez & Manuel Navarro-Ibanez & Jorge Perez-Rodriguez & Simon Sosvilla-Rivero, 2005. "Assessing the credibility of a target zone: evidence from the EMS," Applied Economics, Taylor & Francis Journals, vol. 37(19), pages 2265-2287.

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