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The economic role of jumps in EUR/USD and USD/JPY exchange rates

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  • Xiao-Ping Li
  • Chun-Yang Zhou
  • Chong-Feng Wu

Abstract

This study investigates the economic role of jumps in foreign currency market. We fit exchange rates by the stochastic volatility with correlated jumps (SVCJ) model, and use Markov Chain Monte Carlo (MCMC) approach to estimate the model and identify jumps in exchange rates. Our empirical analysis of EUR/USD and USD/JPY exchange rates suggest that SVCJ model is a good characterization for exchange rates. We find that the jumps in the currency markets are closely connected with significant economic and political events.

Suggested Citation

  • Xiao-Ping Li & Chun-Yang Zhou & Chong-Feng Wu, 2013. "The economic role of jumps in EUR/USD and USD/JPY exchange rates," Applied Economics Letters, Taylor & Francis Journals, vol. 20(15), pages 1440-1444, October.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:15:p:1440-1444
    DOI: 10.1080/13504851.2013.818206
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    Cited by:

    1. Kuttu, Saint & Aboagye, Anthony Q.Q. & Bokpin, Godfred A., 2018. "Evidence of time-varying conditional discrete jump dynamics in sub-Saharan African foreign exchange markets," Research in International Business and Finance, Elsevier, vol. 46(C), pages 211-226.

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