Structural breaks in Taylor rule based exchange rate models - Evidence from threshold time varying parameter models

摘要

In this note we develop a Taylor rule based empirical exchange rate model for eleven major currencies that endogenously determines the number of structural breaks in the coefficients. Using a constant parameter specification and a standard time-varying parameter model as competitors reveals that our flexible modeling framework yields more precise density forecasts for all major currencies under scrutiny over the last 24 years. (C) 2016 Elsevier B.V. All rights reserved.