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Long Memory and Volatility Dynamics in the US Dollar Exchange Rate

Author

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  • Guglielmo Maria Caporale

    () (Brunel University London)

  • Luis A. Gil-Alana

    () (University of Navarra)

Abstract

This paper focuses on nominal exchange rates, specifically the US dollar rate vis-�-vis the Euro and the Japanese Yen at a daily frequency. We model both absolute values of returns and squared returns using long-memory techniques, being particularly interested in volatility modelling and forecasting given their importance for FOREX dealers. Compared with previous studies using a standard fractional integration framework such as Granger and Ding (1996), we estimate a more general model which allows for dependence not only at the zero but also at other frequencies. The results show differences in the behaviour of the two series: a long-memory cyclical model and a standard I(d) model seem to be the most appropriate for the US dollar rate vis-�-vis the Euro and the Japanese Yen respectively.

Suggested Citation

  • Guglielmo Maria Caporale & Luis A. Gil-Alana, 2011. "Long Memory and Volatility Dynamics in the US Dollar Exchange Rate," Faculty Working Papers 04/11, School of Economics and Business Administration, University of Navarra.
  • Handle: RePEc:una:unccee:wp0411
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    References listed on IDEAS

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    5. Philipp Sibbertsen, 2004. "Long memory in volatilities of German stock returns," Empirical Economics, Springer, vol. 29(3), pages 477-488, September.
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    Cited by:

    1. Trenca Ioan & Cociuba Mihail Ioan, 2011. "Modeling Romanian Exchange Rate Evolution With Garch, Tgarch, Garch- In Mean Models," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(special), pages 299-305, July.
    2. Bruno Versailles, 2012. "Market Intergration and Border Effects in Eastern Africa," CSAE Working Paper Series 2012-01, Centre for the Study of African Economies, University of Oxford.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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