Towards Decoding Currency Volatilities

Johannes Juttner () and Wayne Leung
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Johannes Juttner: Department of Economics, Macquarie University
Wayne Leung: Department of Economics, Macquarie University

No 405, Research Papers from Macquarie University, Department of Economics

Abstract: This study contributes, on the basis of economic theory, to an explanation of exchange rate volatilities for a large number of currencies. We relate daily changes in GARCH(1,1) volatilities of exchange rates to the volatility changes of several of their presumed fundamental economic determinants. The use of highfrequency data limits the choice of the explanatory economic variables that can be included. The first differences of GARCH(1,1) volatilities of share and bond price indices proxy for wealth uncertainty and the latter, in addition, for interest rate variability. Likewise, first differences of the gold price volatility, as an additional determinant, are related to exchange rate volatilities of two commodity currencies in the sample. The estimates produce coefficients with the expected signs and statistical significance.

Keywords: Exchange rate volatilities; volatility relationships; GARCH modelling (search for similar items in EconPapers)
JEL-codes: C22 F31 (search for similar items in EconPapers)
Pages: 26 pages.
Date: 2004-08
New Economics Papers: this item is included in nep-cba, nep-fmk and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:mac:wpaper:0405

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