Estimation and Forecasting with Smoothing Transition Autoregressive Model: Evidence from Drachma-US Dollar Spot Exchange Rate

Abstract

The aim of this paper is to test for and model for non-linearities in the spot exchange rate Greece-U.S.A.. To exploit for non-linear dependencies we apply the Smoothing Transition Autoregressive (STAR) models family and we examine if there is actually a non-linear behavior or not on the specific spot exchange rate we investigate. If there is non-linear dependency we estimate the proper non-linear models, based on selection tests and we apply in-sample and out-of-sample forecasting.