Forecasting EUR/PLN Exchange Rate: the Role of Purchasing Power Parity Hypothesis in ESTVEC Models

Adrian Marek Burda, Błażej Mazur, Mateusz Paweł Pipień

DOI: http://dx.doi.org/10.12775/DEM.2017.006

Abstract


The purpose of this paper is to verify strong-form purchasing power parity (PPP) of EUR/PLN within a class of smooth transition vector error correction models (ESTVECM). Empirical importance of exponential smooth transition functions is confronted with the linear error-correction mechanism. A class of competing models for recursive samples are compared by the likelihood ratio test, information criteria, and out of sample forecast accuracy measures.


Keywords


PPP; ESTVECM; cointegration; exchange rate forecasting

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References


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