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Geography, Industrial Organization, and Agglomeration Heteroskedasticity Models with Estimates of the Variances of Foreign Exchange Rates

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Abstract

This paper proposes a robust estimation procedure, the bounded influence estimate (BIS), which is robust against departure from the conditional normality of the autoregressive conditional heteroskedasticity (ARCH) models to describe the behavior of exchange rates. First, the BIE identifies the additive outliers (AO, e.g., Fox 1972) caused by abnormal information arrivals which may be triggered by changes in domestic policies and international shocks. Identification of outliers allows us to analyze the major economic and political factors that contribute directly to the dramatic changes in exchange rates. Second, the performance of the BIE is compared with the maximum likelihood estimate (MLE) and a semiparametric estimator (SP) of Engle and Gonzalez-Rivera (1991).

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File URL: http://www.maxwell.syr.edu/uploadedFiles/cpr/publications/working_papers2/wp34.pdf
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Bibliographic Info

Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 34.

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Length: 25 pages
Date of creation: Feb 2001
Date of revision:
Handle: RePEc:max:cprwps:34

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  2. Lastrapes, William D, 1989. "Exchange Rate Volatility and U.S. Monetary Policy: An ARCH Application," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 66-77, February.
  3. Peracchi, Franco, 1991. "Bounded-influence estimators for the SURE model," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 119-134.
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  8. repec:fth:inseep:9009 is not listed on IDEAS
  9. Engle, Robert F & Gonzalez-Rivera, Gloria, 1991. "Semiparametric ARCH Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(4), pages 345-59, October.
  10. Weiss, Andrew A., 1986. "Asymptotic Theory for ARCH Models: Estimation and Testing," Econometric Theory, Cambridge University Press, vol. 2(01), pages 107-131, April.
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