Auto-detecting Structural Breaks in China’s FX Regime

FrankelWei_2005_2010.r

## if fxregime or strucchange package is absent from installed packages, download it and load it
if(!require('fxregime')){
  install.packages("fxregime")
}
if(!require('strucchange')){
  install.packages("strucchange")
}

## load packages 
library("fxregime")
library('strucchange')
# load the necessary data related to exchange rates - 'FXRatesCHF'
# this dataset treats CHF as unit currency
data("FXRatesCHF", package = "fxregime")

## compute returns for CNY (and explanatory currencies)
## since China abolished fixed USD regime
cny <- fxreturns("CNY", frequency = "daily",
                 start = as.Date("2005-07-25"), end = as.Date("2010-02-12"),
                 other = c("USD", "JPY", "EUR", "GBP"))

## compute all segmented regression with minimal segment size of
## h = 100 and maximal number of breaks = 10
regx <- fxregimes(CNY ~ USD + JPY + EUR + GBP,
                 data = cny, h = 100, breaks = 10, ic = "BIC")

## Print summary of regression results
summary(regx)

## minimum BIC is attained for 2-segment (1-break) model
plot(regx)
round(coef(regx), digits = 3)
sqrt(coef(regx)[, "(Variance)"])

## inspect associated confidence intervals
cit <- confint(regx, level = 0.9)
cit
breakdates(cit)

## plot LM statistics along with confidence interval
flm <- fxlm(CNY ~ USD + JPY + EUR + GBP, data = cny)
scus <- gefp(flm, fit = NULL)
plot(scus, functional = supLM(0.1))
## add lines related to breaks to your plot
lines(cit)