Modeling Exchange Rate and Industrial Commodity Volatility Transmissions
AbstractThis paper examines the inclusion of the dollar/euro exchange rate together with important commodities in two different BEKK, or multivariate conditional covariance, models. Such inclusion increases the significant direct and indirect past shock and volatility effects on future volatility between the commodities, as compared with their effects in the all-commodity basic model (Model 1), which includes the highly-traded aluminum, copper, gold and oil. Model 2, which includes copper, gold, oil and exchange rate, displays more direct and indirect transmission than does Model 3, which replaces the business cycle-sensitive copper with the highly energy-intensive aluminum. Optimal portfolios should have more Euro than commodities, and more copper and gold than oil. The multivariate conditional volatility models reveal greater volatility spillovers than their univariate counterparts.
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Bibliographic InfoPaper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0096.
Length: 32 pages
Date of creation: Feb 2009
Date of revision:
multivariate GARCH; shocks; volatility; transmission; portfolio weights;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-22 (All new papers)
- NEP-ETS-2009-03-22 (Econometric Time Series)
- NEP-IFN-2009-03-22 (International Finance)
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