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Price Volatility and Financial Instability

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  • H. L. Leon
  • DeLisle Worrell
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    Abstract

    Statistical measures of the volatility of exchange rates, interest rates, and stock prices are estimated for a number of countries. Periods of high volatility are identified and compared with periods of financial difficulty. The results indicate that GARCH models of volatility could be potentially useful in assessing financial soundness. Daily data are more revealing, but monthly series allow comparisons among many countries. Country specific models may be needed for more reliable inference.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/60.

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    Length: 43
    Date of creation: 01 Apr 2001
    Date of revision:
    Handle: RePEc:imf:imfwpa:01/60

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    Related research

    Keywords: Exchange rates; Stock markets; Exchange rate instability; Price stabilization; Economic models; exchange rate; stock market; stock prices; stock price; exchange rate volatility; stock market indices; financial sector; financial system; financial instability; exchange rate regime; stock price index; stock market price; financial institutions; financial markets; exchange rate changes; stock price indices; foreign exchange; stock market index; currency depreciation; stock price volatility; stock market prices; real exchange rate; volatility in exchange rates; nominal exchange rate; stock exchange; exchange markets; stock market volatility; stock indices; financial liberalization; deposit interest; floating exchange rates; financial assets; international financial corporation; deposit interest rates; foreign exchange markets; international capital; exchange risk; depreciating exchange rate; hedge; liquidity support; stock index; money market interest; financial intermediaries; financial reforms; stock market crash; deposit insurance; financial stability; foreign exchange risk; exchange reserves; foreign exchange earnings; financial market development; international financial statistics; daily exchange rate; currency basket; exchange earnings; stock returns; money market interest rates; financial market; financial economics; exchange rate depreciation; foreign exchange reserves;

    This paper has been announced in the following NEP Reports:

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche 9613, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. Lamoureux, Christopher G & Lastrapes, William D, 1990. " Heteroskedasticity in Stock Return Data: Volume versus GARCH Effects," Journal of Finance, American Finance Association, vol. 45(1), pages 221-29, March.
    3. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March.
    4. Baillie, Richard T. & DeGennaro, Ramon P., 1990. "Stock Returns and Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(02), pages 203-214, June.
    5. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    6. Paul Louis Ceriel Hilbers & Alfredo Mario Leone & Mahinder Singh Gill & Owen Evens, 2000. "Macroprudential Indicators of Financial System Soundness," IMF Occasional Papers 192, International Monetary Fund.
    7. Pagan, Adrian R. & Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 267-290.
    8. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
    9. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
    10. Diebold & Lopez, . "Modeling Volatility Dynamics," Home Pages _062, University of Pennsylvania.
    11. Burkhard Drees & Ceyla Pazarbasioglu, 1998. "The Nordic Banking Crisis," IMF Occasional Papers 161, International Monetary Fund.
    12. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    13. E Philip Davis, 1999. "Financial data needs for macroprudential surveillance - What are the key indicators of risks to domestic financial stability?," Lectures, Centre for Central Banking Studies, Bank of England, number 2, November.
    14. Geoffrey Booth, G. & Hatem, John & Virtanen, Ilkka & Yli-Olli, Paavo, 1992. "Stochastic modeling of security returns: Evidence from the Helsinki Stock Exchange," European Journal of Operational Research, Elsevier, vol. 56(1), pages 98-106, January.
    15. Bookstaber, Richard M & McDonald, James B, 1987. "A General Distribution for Describing Security Price Returns," The Journal of Business, University of Chicago Press, vol. 60(3), pages 401-24, July.
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