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Structural Breaks in Volatility: Evidence from the OECD Real Exchange Rates

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  • Amalia Morales-Zumaquero
  • Simon Sosvilla-Rivero

Abstract

This paper analyses whether volatility changes in the real exchange rates (RERs) of the OECD industrial countries are associated with a specific nominal exchange rate regime. To that end, we examine RER behaviour during the period 1960-2003, thereby covering both the Bretton Woods system of fixed exchange rates and the adoption of generalised floating exchange rates from 1973. We make use of an econometric methodology based on Hansen’s (1997) approximation to the p-values of the supreme, exponential and average statistics developed by Andrews (1993) and Andrews and Ploberger (1994). This methodology allows us to obtain a profile of p-values and to delimit periods of stability and instability in the variance of real exchange rates. For most countries in our sample, there is evidence in favour of the non-neutrality of the nominal exchange rate regime regarding real exchange rate volatility.

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Paper provided by FEDEA in its series Working Papers with number 2004-22.

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Handle: RePEc:fda:fdaddt:2004-22

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  1. Frankel, Jeffrey A. & Rose, Andrew K., 1995. "Empirical research on nominal exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 33, pages 1689-1729 Elsevier.
  2. Maximo Camacho, 2004. "Vector smooth transition regression models for US GDP and the composite index of leading indicators," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(3), pages 173-196.
  3. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
  4. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
  5. Flood, Robert P & Rose, Andrew K, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," CEPR Discussion Papers 838, C.E.P.R. Discussion Papers.
  6. Jorge Carrera & Guillermo Vuletin, 2003. "The Effects of Exchange Rate Regimes on Real Exchange Rate Volatility. A Dynamic Panel Data Approach," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] c67, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  7. Mussa, Michael, 1986. "Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 117-214, January.
  8. Richard N. Cooper, 1999. "Exchange Rate Choices," Harvard Institute of Economic Research Working Papers 1877, Harvard - Institute of Economic Research.
  9. John H. Rogers, 1995. "Real shocks and real exchange rates in really long-term data," International Finance Discussion Papers 493, Board of Governors of the Federal Reserve System (U.S.).
  10. Richard N. Cooper, 1999. "Exchange rate choices," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 43(Jun), pages 99-136.
  11. Grilli, Vittorio & Kaminsky, Graciela, 1991. "Nominal exchange rate regimes and the real exchange rate : Evidence from the United States and Great Britain, 1885-1986," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 191-212, April.
  12. Hong Liang, 1998. "Real Exchange Rate Volatility," IMF Working Papers 98/147, International Monetary Fund.
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Cited by:
  1. Simon Sosvilla-Rivero & Pedro N. Rodríguez, . "Linkages in international stock markets: Evidence from a classification procedure," Working Papers 2004-23, FEDEA.
  2. Corinne Mette, . "Wellbeing and dependency among European elderly: The role of social integration," Working Papers 2005-12, FEDEA.
  3. Namkee Ahn & Juan Ramón García & José A. Herce, . "Demographic Uncertainty and Health Care Expenditure in Spain," Working Papers 2005-07, FEDEA.
  4. Ana Carolina Ortega Masagué, . "La situación laboral de los inmigrantes en España: Un análisis descriptivo," Working Papers 2005-08, FEDEA.

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