Mean Variance Causality between the Official and Parallel Currency Markets: Evidence from Four Latin American Countries

28 Pages Posted: 20 Nov 2000

See all articles by Angelos Kanas

Angelos Kanas

University of Crete - Department of Economics

Georgios P. Kouretas

Athens University of Economics and Business; IPAG Business School

Date Written: February 2000

Abstract

This paper examines the issue of mean and variance causality across four Latin American official and black markets for foreign currency using the corresponding monthly exchange rate against the US dollar for the period 1976-1993. Specifically, we apply an EGARCH-M model to study the behaviour of the Argentinian peso, the Brazilian cruzeiro, the Chilean peso and the Mexican peso against the US dollar. Furthermore, we apply a recent test due to Cheung and Ng (1996) in order to test for the existence of any causality and volatility spillovers among these official and black markets for foreign exchange. The main findings of the analysis are: (i) In contrast to the findings of previous studies using monthly rates, EGARCH-M processes characterize each bilateral exchange rate series in both markets; (ii) There is substantial evidence of causality in both mean and variance with the causality in mean largely being driven by the causality in variance; and (iii) The results indicate that the major exporter of causality is the Mexican black market with the black market of Argentina and the black and official markets of Brazil being the least contributors.

Keywords: causality, cross-correlation function, EGARCH-M, black market, exchange rates, volatility spillovers

JEL Classification: F31, F32, C22, C52

Suggested Citation

Kanas, Angelos and Kouretas, Georgios P., Mean Variance Causality between the Official and Parallel Currency Markets: Evidence from Four Latin American Countries (February 2000). EFMA 2000 Athens. Available at SSRN: https://ssrn.com/abstract=246825 or http://dx.doi.org/10.2139/ssrn.246825

Angelos Kanas

University of Crete - Department of Economics ( email )

GR-74100 Rethymnon, GR-74100
Greece
0831-77427 (Phone)

Georgios P. Kouretas (Contact Author)

Athens University of Economics and Business ( email )

Department of Business Administration
Athens, GR-10434
Greece

HOME PAGE: http://www.aueb.gr/Users/kouretas/index_en.html

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

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