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The Impacts of Monetary Policy Announcements and Derivatives Maturity on the Mexican Peso Exchange Rate Volatility: GARCH and OCHL Range Models

Author

Listed:
  • Magnolia Miriam Sosa Castro

    (Universidad Autónoma Metropolitana-Iztapalapa)

  • Maria Alejandra Cabello Rosales

    (Universidad Nacional Autónoma de México)

  • Edgar Ortiz Calisto

    (Universidad Autónoma de México)

Abstract

We analyze the impact of interest rate changes and derivatives maturity announcements on exchange rate volatility in Mexico. To do so, we first estimate volatility using four measures of range volatility (OCLH models) and three extensions of the GARCH family (GARCH, TARCH and EGARCH), assuming normal distribution, t-Student and GED. Once volatilities are estimated, the impact of monetary policy announcements and derivatives maturity on the MexDer is estimated using daily closing, opening, high, and low data during the period January/2013-April/2024. The results show that range volatility measures underestimate exchange rate volatility. Apparently, derivatives maturities and monetary policy announcements have a negative effect on range/intraday volatilities, but not on the conditional volatility that contemplates persistence and asymmetry in volatility.

Suggested Citation

  • Magnolia Miriam Sosa Castro & Maria Alejandra Cabello Rosales & Edgar Ortiz Calisto, 2025. "The Impacts of Monetary Policy Announcements and Derivatives Maturity on the Mexican Peso Exchange Rate Volatility: GARCH and OCHL Range Models," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 103, pages 47-75, June.
    • Handle: RePEc:lde:journl:y:2025:i:103:p:47-75
    DOI: 10.17533/udea.le.n103a358443
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    References listed on IDEAS

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    1. Engel, Charles & Bianchi, Javier & Bigio, Saki, 2021. "Scrambling for Dollars: International Liquidity, Banks and Exchange Rates," CEPR Discussion Papers 16712, C.E.P.R. Discussion Papers.
    2. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    3. Helena Glebocki Keefe, 2020. "The impact of exchange rate volatility on inflation targeting monetary policy in emerging and advanced economies," International Finance, Wiley Blackwell, vol. 23(3), pages 417-433, December.
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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