Long Memory and Volatility Dynamics in the US Dollar Exchange Rate
32 Pages Posted: 19 Jun 2015
Date Written: June 17, 2015
This paper focuses on nominal exchange rates, specifically the US dollar rate vis-à-vis the Euro and the Japanese Yen at a daily frequency. In the paper both absolute values of returns and squared returns are modelled using long-memory techniques, being particularly interested in volatility modelling and forecasting. Compared with previous studies using fractional integration such as Granger and Ding (1996), a more general model is estimated, 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(1) model seem to be the most appropriate for the US dollar rate vis-à-vis the Euro and the Japanese Yen respectively.
Keywords: Fractional integration; Long memory; Exchange rates; Volatility
JEL Classification: C22, O40
Suggested Citation: Suggested Citation