Equilibrium Exchange Rate Determination and Multiple Structural Changes

The large appreciation and depreciation of the US dollar in the 1980s stimulated an important debate on the usefulness of unit root tests in the presence of structural breaks. In this paper, we propose a simple model to describe the evolution of the real exchange rate. We then propose a more general smooth transition (STR) function than has hitherto been employed, which is able to capture structural changes along the (long-run) equilibrium path, and show that this is consistent with our economic model. Our framework allows for a gradual adjustment between regimes and allows for under- and/or over-valued exchange rate adjustments. Using monthly and quarterly data for up to twenty OECD countries, we apply our methodology to investigate the univariate time series properties of CPI-based real exchange rates with both the U.S. dollar and German mark as the numeraire currencies. The empirical results show that, for more than half of the quarterly series, the evidence in favour of the stationarity of the real exchange rate was clearer in the sub-sample period post-1980.

Economic Principles and Determination of Infrastructure Third Party Tariffs in the UK Continental Shelf (UKCS)

NORTH SEA STUDY OCCASIONAL PAPER No. 116

Data-based priors for vector autoregressions with drifting coefficients

This paper proposes full-Bayes priors for time-varying parameter vector autoregressions (TVP-VARs) which are more robust and objective than existing choices proposed in the literature. We formulate the priors in a way that they allow for straightforward posterior computation, they require minimal input by the user, and they result in shrinkage posterior representations, thus, making them appropriate for models of large dimensions. A comprehensive forecasting exercise involving TVP-VARs of different dimensions establishes the usefulness of the proposed approach.