01962cam a22002417 4500001000600000003000500006005001700011008004100028100002000069245014400089260006600233490004100299500001900340520097800359530006101337538007201398538003601470700002301506710004201529830007601571856003701647856003601684w3165NBER20180424070459.0180424s1989 mau||||fs|||| 000 0 eng d1 aEngel, Charles.10aLong Swings in the Exchange Rateh[electronic resource]:bAre they in the Data and Do Markets Know It? /cCharles Engel, James D. Hamilton. aCambridge, Mass.bNational Bureau of Economic Researchc1989.1 aNBER working paper seriesvno. w3165 aNovember 1989.3 aThe value of the dollar appears to move in one direction for long periods of time. We develop a new statistical model of exchange rate dynamics as a sequence of stochastic, segmented time trends. The paper implements new techniques for parameter estimation and hypothesis testing for this framework. We reject the null hypothesis that exchange rates follow a random walk in favor of our model of long swings. Our model also generates better forecasts than a random walk. We conclude that persistent movement in the value of the dollar is a fact that calls for greater attention in the theory of exchange rate behavior. The model is a natural framework for assessing the importance of the "peso problem" for the dollar. It allows for the expectation of future exchange rates to be influenced by the probability of a change in regime. We nonetheless reject uncovered interest parity. The forward premium appears frequently to put too high a probability on a change in regime. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aHamilton, James D.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w3165.4 uhttp://www.nber.org/papers/w316541uhttp://dx.doi.org/10.3386/w3165