Long Memory and Volatility Dynamics in the US Dollar Exchange Rate

Guglielmo Maria Caporale and Luis Gil-Alana

No 04/11, Faculty Working Papers from School of Economics and Business Administration, 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.

Pages: 45 pages
Date: 2011-01-18
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http://www.unav.edu/documents/10174/6546776/1299001751_WP_UNAV_04_11.pdf (application/pdf)

Related works:
Journal Article: Long Memory and Volatility Dynamics in the US Dollar Exchange Rate (2012)
Working Paper: Long Memory and Volatility Dynamics in the US Dollar Exchange Rate (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:una:unccee:wp0411

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