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

  • Luc, BAUWENS

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

  • Genaro, SUCARRAT

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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Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2006013.

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Length: 39
Date of creation: 01 Feb 2006
Date of revision:
Handle: RePEc:ctl:louvec:2006013
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