A THRESHOLD-MODEL FOR THE FRENCH FRANC DEUTSCHMARK EXCHANGE-RATE/

The behaviour of the French franc/deutschmark exchange rate is examine d in this paper. During the time period studied, these currencies were constrained to lie within prescribed bands relative to one another an d the usual random walk explanation of the exchange rate may not be ap propriate. The data are examined for evidence of non-linear structure and it is shown that a piecewise linear SETAR model provides a better explanation and superior forecasting performance than a random walk.