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Long Memory and Volatility Dynamics in the US Dollar Exchange Rate

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  • Guglielmo Maria Caporale

    ()
    (Brunel University London)

  • Luis A. Gil-Alana

    ()
    (University of Navarra)

Abstract

This paper focuses on nominal exchange rates, specifically the US dollar rate vis-à-vis the Euro and the Japanese Yen at a daily frequency. We model both absolute values of returns and squared returns using long-memory techniques, being particularly interested in volatility modelling and forecasting given their importance for FOREX dealers. Compared with previous studies using a standard fractional integration framework such as Granger and Ding (1996), we estimate a more general model which allows for dependence not only at the zero but also at other frequencies. The results show differences in the behaviour of the two series: a long-memory cyclical model and a standard I(d) model seem to be the most appropriate for the US dollar rate vis-à-vis the Euro and the Japanese Yen respectively.

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File URL: http://www.unav.es/facultad/econom/files/workingpapersmodule/@random4d35501bb6886/1299001751_WP_UNAV_04_11.pdf
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Bibliographic Info

Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 04/11.

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Length: 45 pages
Date of creation: 18 Jan 2011
Date of revision:
Handle: RePEc:una:unccee:wp0411

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Web page: http://www.unav.es/facultad/econom

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  16. Philipp Sibbertsen, 2004. "Long memory in volatilities of German stock returns," Empirical Economics, Springer, vol. 29(3), pages 477-488, 09.
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  18. Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996. "Fractionally integrated generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 74(1), pages 3-30, September.
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Cited by:
  1. Bruno Versailles, 2012. "Market Intergration and Border Effects in Eastern Africa," CSAE Working Paper Series 2012-01, Centre for the Study of African Economies, University of Oxford.
  2. Trenca Ioan & Cociuba Mihail Ioan, 2011. "Modeling Romanian Exchange Rate Evolution With Garch, Tgarch, Garch- In Mean Models," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(special), pages 299-305, July.

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