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Long run trends and volatility spillovers in daily exchange rates

  • Angela Black
  • David McMillan

Recent evidence has suggested that a model capable of capturing multiple volatility dynamics best describes daily exchange rate volatility. Estimation of a model that can capture long-run and short-run volatility movement also allows issues relating to financial and economic integration between countries to be examined. More specifically, the long-run component for comovement can be examined and spillover effects tested for in mean and volatility, the latter of which is suggestive of policy co-ordination. Using a series of dollar exchange rates supportive evidence is reported of a long-run/short-run decomposition for volatility, and existence of three long-run volatility trends, one for the European series and a trend each for the non-European series. Further, significant volatility spillovers are reported, notably amongst the European series. These results are thus supportive of increased convergence between these economies.

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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 12 ()
Pages: 895-907

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Handle: RePEc:taf:apfiec:v:14:y:2004:i:12:p:895-907
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