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The stochastic volatility model with random jumps and its application to BRL/USD exchange rate

Author

Listed:
  • Márcio P. Laurini

    (FEA-RP USP)

  • Roberto B. Mauad

    (FEA-RP USP)

Abstract

This work proposes the application of a stochastic volatility model with jumps to the BRL/USD exchange rate. This model decomposes the process into transitory and permanent components that capture the jumps in the level of the unobserved volatility process. The model estimation is done using Bayesian inference, and jumps at the level of the volatility of the exchange rate are analyzed according to the main economic events in this sample. We conclude that the model is consistent with the changes in the Brazilian economy and the crises observed in the analyzed period.

Suggested Citation

  • Márcio P. Laurini & Roberto B. Mauad, 2014. "The stochastic volatility model with random jumps and its application to BRL/USD exchange rate," Economics Bulletin, AccessEcon, vol. 34(2), pages 1002-1011.
    • Handle: RePEc:ebl:ecbull:eb-14-00201
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2014/Volume34/EB-14-V34-I2-P92.pdf
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    References listed on IDEAS

    as
    1. Zhongjun Qu & Pierre Perron, 2013. "A stochastic volatility model with random level shifts and its applications to S&P 500 and NASDAQ return indices," Econometrics Journal, Royal Economic Society, vol. 16(3), pages 309-339, October.
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    Cited by:

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    2. Chaim, Pedro & Laurini, Márcio P., 2019. "Nonlinear dependence in cryptocurrency markets," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 32-47.

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    More about this item

    Keywords

    Stochastic volatility; random jumps; exchange rates; Bayesian Inference; MCMC.;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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