IDEAS home Printed from https://ideas.repec.org/a/ris/ecoint/0016.html
   My bibliography  Save this article

Assessing the Volatility of the Euro on Foreign Exchange Markets: Further Empirical Evidence and Policy Implications

Author

Listed:
  • Tronzano, Marco

    () (Università degli Studi di Genova, Dipartimento di Economia e Metodi Quantitativi)

Abstract

This paper assesses the validity of the ECB ‘benign neglect’ approach towards foreign exchange markets. I extend the analysis performed in Tronzano (2008) on the U$/Euro rate, applying a wide range of conditional volatility models to Yen/Euro data from 1999 to 2007. An overall evaluation of results, in the light of the literature on the welfare effects of nominal exchange rate volatility and optimal rules for open economies, reveals that the ECB inwardoriented approach was fully appropriate. In line with Tronzano (2008), this paper excludes therefore substantial welfare gains from a policy incorporating a systematic reaction to exchange rate dynamics.

Suggested Citation

  • Tronzano, Marco, 2009. "Assessing the Volatility of the Euro on Foreign Exchange Markets: Further Empirical Evidence and Policy Implications," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 62(1), pages 103-131.
  • Handle: RePEc:ris:ecoint:0016
    as

    Download full text from publisher

    File URL: http://www.iei1946.it/RePEc/ccg/TRONZANO%20103_131.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Straub, Roland & Tchakarov, Ivan, 2004. "Non-fundamental exchange rate volatility and welfare," Working Paper Series 328, European Central Bank.
    2. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters,in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
    3. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    4. Jagjit S. Chadha & Lucio Sarno & Giorgio Valente, 2004. "Monetary Policy Rules, Asset Prices, and Exchange Rates," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 529-552, November.
    5. Wollmershauser, Timo, 2006. "Should central banks react to exchange rate movements? An analysis of the robustness of simple policy rules under exchange rate uncertainty," Journal of Macroeconomics, Elsevier, vol. 28(3), pages 493-519, September.
    6. Breedon, Francis & Hume, Michael, 2007. "Does the European Central Bank have a credibility problem?," Economics Letters, Elsevier, vol. 95(3), pages 438-442, June.
    7. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    8. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    9. Lubik, Thomas A. & Schorfheide, Frank, 2007. "Do central banks respond to exchange rate movements? A structural investigation," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1069-1087, May.
    10. Benigno, Gianluca & Benigno, Pierpaolo, 2001. "Monetary Policy Rules and the Exchange Rate," CEPR Discussion Papers 2807, C.E.P.R. Discussion Papers.
    11. Leitemo, Kai & Soderstrom, Ulf, 2005. "Simple monetary policy rules and exchange rate uncertainty," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 481-507, April.
    12. Grégory Levieuge, 2006. "Règle de Taylor vs Règle-icm. Application à la zone euro," Revue économique, Presses de Sciences-Po, vol. 57(1), pages 85-121.
    13. Batini, Nicoletta & Harrison, Richard & Millard, Stephen P., 2003. "Monetary policy rules for an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11), pages 2059-2094.
    14. Ivan Tchakarov & Paul Bergin, 2003. "Does Exchange Rate Risk Matter for Welfare?," Computing in Economics and Finance 2003 61, Society for Computational Economics.
    15. Gerlach, Stefan & Smets, Frank, 2000. "MCIs and monetary policy," European Economic Review, Elsevier, vol. 44(9), pages 1677-1700, October.
    16. David McMillan & Alan Speight, 2001. "Nonlinearities in the black market zloty-dollar exchange rate: some further evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 11(2), pages 209-220.
    17. Bergin, Paul R. & Shin, Hyung-Cheol & Tchakarov, Ivan, 2007. "Does exchange rate variability matter for welfare? A quantitative investigation of stabilization policies," European Economic Review, Elsevier, vol. 51(4), pages 1041-1058, May.
    18. Linda S. Goldberg & Michael W. Klein, 2005. "Establishing Credibility: Evolving Perceptions of the European Central Bank," NBER Working Papers 11792, National Bureau of Economic Research, Inc.
    19. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
    20. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
    21. Guglielmo Maria Caporale & Nikitas Pittis & Nicola Spagnolo, 2003. "IGARCH models and structural breaks," Applied Economics Letters, Taylor & Francis Journals, vol. 10(12), pages 765-768.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Exchange Rate Volatility; Garch Models; Monetary Policy Rules; ECB; Yen/Euro Exchange Rate;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:ecoint:0016. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Angela Procopio). General contact details of provider: http://edirc.repec.org/data/cacogit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.