Mixed Diffusion-Jump Process Modeling of Exchange Rate Movements

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Abstract
This study demonstrates that the mixed diffusion-jump process is superior to the stable laws or a mixture of normals as a model of exchange rate changes for the British pound, French franc, and the West German mark relative to the United States dollar. The parameter values for the mixed diffusion-jump process are dependent on the United States' monetary policy regime in force, with the estimates for the franc and mark being intertemporally similarly but different from the pound.

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