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Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

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

Florian Huber ()
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Florian Huber: Department of Economics, Vienna University of Economics and Business

Abstract: 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 parametermodel as competitors reveals that our flexible modeling framework yields more precise density forecasts for all major currencies under scrutiny over the last 24 years.

Keywords: Stochastic volatility, mixture innovation models, time-varying parameters

JEL-codes: E52; F31; F42 March 2017

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