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Time-Varying Behavior And Asymmetry In Ems Exchange Rates

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NIKIFOROS T. LAOPODIS

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Abstract

This paper explores the time-varying behavior of five EMS exchange rates namely,the Belgian Franc,Dutch Guilder,French Franc,Italian Lira and the Spanish Peseta vis-á-vis the Deutschemark from 1979 to 1998. The returns were examined using the Sign- and Volatility-Switching GARCH model,which is capable of accounting for potential asymmetries and the reversals in a series' volatility structure. The results point to significant sensitivities of the conditional variances of the French franc,the lira and the peseta to adverse shocks but noable responsiveness to fourable shocks by those of the other rates. Although asymmetric in the volatility structure of all rates is found in the period prior to Germany's reunification in 1990,it vanishes thereafter. Volatility presistence for all rates is noticeable in the first period but becomes more pronounced in the second. [F23,F31]

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Publisher Info
Article provided by Korean International Economic Association in its journal International Economic Journal.

Volume (Year): 15 (2001)
Issue (Month): 4 (December)
Pages: 81-94
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Handle: RePEc:taf:intecj:v:15:y:2001:i:4:p:81-94

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  1. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March. [Downloadable!] (restricted)
  2. Hallett, Andrew Hughes & Anthony, Myrvin L., 1997. "Exchange rate behaviour under the EMS regime: was there any systematic change?," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 537-560, August. [Downloadable!] (restricted)
  3. McKinnon, Ronald I, 1993. "The Rules of the Game: International Money in Historical Perspective," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 1-44, March. [Downloadable!] (restricted)
  4. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March. [Downloadable!] (restricted)
  5. van de Gucht, Linda M. & Dekimpe, Marnik G. & Kwok, Chuck C. Y., 1996. "Persistence in foreign exchange rates," Journal of International Money and Finance, Elsevier, vol. 15(2), pages 191-220, April. [Downloadable!] (restricted)
  6. Fornari, Fabio & Mele, Antonio, 1997. "Sign- and Volatility-Switching ARCH Models: Theory and Applications to International Stock Markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(1), pages 49-65, Jan.-Feb.. [Downloadable!]
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  7. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December. [Downloadable!] (restricted)
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  8. Robert F. Engle & Yin-Feng Gau, 1997. "Conditional Volatility of Exchange Rates Under a Target Zone," University of California at San Diego, Economics Working Paper Series 97-06, Department of Economics, UC San Diego. [Downloadable!]
  9. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July. [Downloadable!] (restricted)
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  1. Arie Preminger & Uri Ben-Zion & David Wettstein, 2006. "Extended switching regression models with time-varying probabilities for combining forecasts," European Journal of Finance, Taylor and Francis Journals, vol. 12(6-7), pages 455-472, October. [Downloadable!] (restricted)
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