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Partial Equilibrium versus General Equilibrium Models of International Capital Market

Partial Equilibrium versus General Equilibrium Models of International Capital Market,B. Dumas

Partial Equilibrium versus General Equilibrium Models of International Capital Market   (Citations: 23)
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Published in 1994.
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    • ...As stated by Dumas (1994) and Michael et al...

    Juan Carlos Cuestaset al. Nonlinearities in real exchange rate determination: do African exchang...

    • ...Furthermore, time aggregation and particularly nonsynchronous adjustment by heterogeneous agents are likely to cause smooth aggregate regime switching (Dumas, 1994; Teräsvirta, 1994; Granger and Lee, 1999), and smooth rather than discrete adjustment may be more appropriate in situations involving proportional transaction costs (Monoyios and Sarno, 2002)...

    Yen-Hsien Leeet al. Nonlinear adjustment of short-term deviations impacts on the US real e...

    • ...As stated by Dumas (1994) and Michael, Nobay and Peel 1997, among others, it is sensible to assume that the shift between regimes is smooth rather than sudden, due to time aggregation and individuals behaviour...

    Juan Carlos Cuestas. Purchasing power parity in Central and Eastern European countries: an ...

    • ...In some models the jump to mean-reverting behaviour is sudden, whilst in others it is smooth, and Dumas (1994) suggests that even in the former case, time aggregation will tend to smooth the transition between regimes...

    Ibrahim Chowdhury. Purchasing Power Parity and the Real Exchange Rate in Bangladesh: A No...

    • ...3 See, e.g., Dumas (1994) and Sofianos (1993) on this point...
    • ...First, some influential studies of arbitrage in financial as well as real markets show that the thresholds should be interpreted more broadly than as simply reflecting proportional transactions costs per se, but also as resulting from the tendency of traders to wait for sufficiently large arbitrage opportunities to open up before entering the market and trading (see, e.g., Dumas, 1992, 1994; Neal, 1996; Sofianos, 1993).6...
    • ...Intuitively, arbitrage will be heavy once it is profitable enough to outweigh the initial fixed cost, but will stop short of returning the basis to the equilibrium value because of the proportional arbitrage costs (see the discussion in Dumas, 1994, in the context of international capital markets)...
    • ...the basis back within the bounds will increase as the deviation from the bounds increases since an increasing number of agents face profitable arbitrage opportunities, implying the possibility of a smooth transition of the basis back towards the bounds such that the speed of mean reversion increases with the degree of violation of the arbitrage bounds (see, e.g., Dumas, 1994)...
    • ...agents) the jump to mean-reverting behavior may be discrete, but in general it is smooth, and Dumas (1994), Teräsvirta (1994), and Granger and Lee (1999) suggest that even in the former case, time aggregation will tend to smooth the transition between regimes...
    • ...Moreover, given the discussion in the previous section, smooth rather than discrete adjustment may be more appropriate in the presence of proportional transactions costs and, as suggested by Dumas (1994), Teräsvirta (1994), and Granger and Lee (1999), time aggregation and, most importantly, nonsynchronous adjustment by heterogeneous agents is likely to result in smooth aggregate regime...

    Michael Monoyioset al. Mean reversion in stock index futures markets: A nonlinear analysis

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