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

Author

Listed:
  • Nektarios Aslanidis

    (Department of Economics, University of Crete, Greece)

  • George Kouretas

    (Department of Economics, University of Crete, 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.

Suggested Citation

  • Nektarios Aslanidis & George Kouretas, 2003. "Testing for two-regime threshold cointegration in the parallel and official markets for foreign currency in Greece," Working Papers 0311, University of Crete, Department of Economics.
    • Handle: RePEc:crt:wpaper:0311
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    References listed on IDEAS

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    Cited by:

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    2. Mamatzakis, E & Remoundos, P, 2010. "Threshold Cointegration in BRENT crude futures market," MPRA Paper 19978, University Library of Munich, Germany.
    3. Lucia BALDI & Massimo PERI & Daniela VANDONE, 2010. "Is wine a financial parachute?," Departmental Working Papers 2010-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    4. Dirk Meyer & Michael Vogelsang & Anton Beer & André ten Dam, 2011. "Eurokrise: Ist eine temporäre Einführung einer Parallelwährung in den Krisenstaaten eine Lösung?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(23), pages 12-25, December.
    5. Chevallier, Julien, 2011. "Evaluating the carbon-macroeconomy relationship: Evidence from threshold vector error-correction and Markov-switching VAR models," Economic Modelling, Elsevier, vol. 28(6), pages 2634-2656.

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    More about this item

    Keywords

    Parallel market premium; nonlinearity; threshold cointegration; regime switching;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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