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General to Specific Modelling of Exchange Rate Volatility : a Forecast Evaluation

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  • Luc, BAUWENS

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

  • Genaro, SUCARRAT

Abstract

The general-to-specific (GETS) approach to modelling is widely employed in the modelling of economic series, but less so in financial volatility modelling due to computational complexity when many explanatory variables are involved. This study proposes a simple way of avoiding this problem and undertakes an out-of-sample forecast evaluation of the methodology applied to the modelling of weekly exchange rate volatility. Our findings suggest that GETS specifications are especially valuable in conditional forecasting, since the specification that employs actual values on the uncertain information performs particularly well.

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  • Luc, BAUWENS & Genaro, SUCARRAT, 2006. "General to Specific Modelling of Exchange Rate Volatility : a Forecast Evaluation," Discussion Papers (ECON - Département des Sciences Economiques) 2006013, Université catholique de Louvain, Département des Sciences Economiques.
  • Handle: RePEc:ctl:louvec:2006013
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    2. Sucarrat, Genaro & Grønneberg, Steffen & Escribano, Alvaro, 2016. "Estimation and inference in univariate and multivariate log-GARCH-X models when the conditional density is unknown," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 582-594.
    3. Chortareas, Georgios & Jiang, Ying & Nankervis, John. C., 2011. "Forecasting exchange rate volatility using high-frequency data: Is the euro different?," International Journal of Forecasting, Elsevier, vol. 27(4), pages 1089-1107, October.
    4. Genaro Sucarrat & Alvaro Escribano, 2012. "Automated Model Selection in Finance: General-to-Specific Modelling of the Mean and Volatility Specifications," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(5), pages 716-735, October.
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    7. Panday, Anjan, 2015. "Impact of monetary policy on exchange market pressure: The case of Nepal," Journal of Asian Economics, Elsevier, vol. 37(C), pages 59-71.
    8. Sucarrat, Genaro & Escribano, Álvaro, 2010. "The power log-GARCH model," UC3M Working papers. Economics we1013, Universidad Carlos III de Madrid. Departamento de Economía.
    9. J. James Reade & Ulrich Volz, 2011. "From the General to the Specific," Discussion Papers 11-18, Department of Economics, University of Birmingham.
    10. Sucarrat, Genaro & Escribano, Álvaro, 2009. "Automated financial multi-path GETS modelling," UC3M Working papers. Economics we093620, Universidad Carlos III de Madrid. Departamento de Economía.
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    12. Cui, Jin & In, Francis & Maharaj, Elizabeth Ann, 2016. "What drives the Libor–OIS spread? Evidence from five major currency Libor–OIS spreads," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 358-375.
    13. Alvaro Escribano & Genaro Sucarrat, 2011. "Automated model selection in finance: General-to-speci c modelling of the mean and volatility speci cations," Working Papers 2011-09, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.

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    Keywords

    Exchange Rate Volatility; General to Specific; Forecasting;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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