Capturing asymmetry in real exchange rate with quantile autoregression

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Capturing asymmetry in real exchange rate with quantile autoregression

Author Info

Mauro S. Ferreira (Cedeplar-UFMG)

Abstract

Quantile autoregression is used to explore asymmetries in the adjustment process of pair wise real exchange rate between the Italian lire, French franc, Deutsch mark, and the British pound. Based on the best specification for each quantile we construct predicted conditional density functions which guided us to identify two sources of asymmetry: 1) dispersion depends on the conditioned value of the real exchange rate, i.e., “conditional” heterokedasticity; 2) the probability of increases and falls also changes according to the conditioned value, i.e., there is higher probability for the real exchange rate to appreciate (depreciate) given the currency is depreciated (appreciated).We only verified strong heterokedasticity in relations among the lire, franc, and mark, which was resolved by estimating quadratic autoregressive model for some quantiles. Relations involving the pound presented stable but higher dispersion indicating larger probability of wider oscillation.

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Paper provided by Cedeplar, Universidade Federal de Minas Gerais in its series Textos para Discussão Cedeplar-UFMG with number td306.

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Length: 25 pages
Date of creation: Apr 2007
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Handle: RePEc:cdp:texdis:td306

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Postal: Cedeplar-FACE-UFMG Av. Antonio Carlos, 6627 Belo Horizonte, MG 31270-901 Brazil

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-05-04 (All new papers)
NEP-ETS-2007-05-04 (Econometric Time Series)
NEP-IFN-2007-05-04 (International Finance)
NEP-RMG-2007-05-04 (Risk Management)

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