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Long Memory and Volatility Dynamics in the US Dollar Exchange Rate

Author

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  • Guglielmo Maria Caporale

    (Brunel University, UK)

  • Luis Gil-Alana

    (University of Navarra, Spain)

Abstract

This paper focuses on nominal exchange rates, specifically the US dollar rate vis-a-vis the Euro and the Japanese Yen at a daily frequency. In the paper both absolute values of returns and squared returns are modelled using long-memory techniques, being particularly interested in volatility modelling and forecasting. Compared with previous studies using fractional integration such as Granger and Ding (1996), a more general model is estimated, 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(1) model seem to be the most appropriate for the US dollar rate vis-a-vis the Euro and the Japanese Yen respectively.

Suggested Citation

  • Guglielmo Maria Caporale & Luis Gil-Alana, 2012. "Long Memory and Volatility Dynamics in the US Dollar Exchange Rate," Multinational Finance Journal, Multinational Finance Journal, vol. 16(1-2), pages 105-136, March - J.
    • Handle: RePEc:mfj:journl:v:16:y:2012:i:1-2:p:105-136
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    Cited by:

    1. Bruno Versailles, 2012. "Market Integration and Border Effects in Eastern Africa," Economics Series Working Papers WPS/2012-01, University of Oxford, Department of Economics.
    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.
    3. 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.
    4. Rania Jammazi & Chaker Aloui, 2014. "Cyclical components and dual long memory in the foreign exchange rate dynamics: the Tunisian case," Working Papers 2014-198, Department of Research, Ipag Business School.

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    More about this item

    Keywords

    Fractional integration; Long memory; Exchange rates; Volatility;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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