Abstract.
In this study a regime-switching approach is applied to estimate the chartist and fundamentalist (c&f) exchange rate model originally proposed by Frankel and Froot (1986). The c&f model is tested against alternative regime-switching specifications applying likelihood ratio tests. Nested atheoretical models like the popular segmented trends model suggested by Engel and Hamilton (1990) are rejected in favour of the multi-agent model. Our findings turned out to be relatively robust when assessing the models’ sub-sample estimates and out-of-sample performance.
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JEL Classification:
F31, F37, G12, G15
Correspondence to: S. Reitz
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Ahrens, R., Reitz, S. Heterogeneous expectations in the foreign exchange market. J Evol Econ 15, 65–82 (2005). https://doi.org/10.1007/s00191-004-0206-z
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DOI: https://doi.org/10.1007/s00191-004-0206-z