Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
By considering a social trade-off between targeting the exchange rate and minimizing intervention costs, nonlinear exchange rate dynamics can be captured by a structural threshold model. This article provides a theory-based empirical exchange rate model and shows how to put the model into an empirical investigation. To estimate the structural threshold model, we propose a two-step procedure which separately estimates the permanent and temporary fundamentals of the foreign exchange market. A demonstration of our approach is applied to 1981Q3-2008Q3 Taiwan's foreign exchange market, with a brief review of its monetary policies and central bank given prior. Estimation results are consistent with theoretical predictions and many intervention operations of Taiwan's central bank are successfully identified.