General to Specific Modelling of Exchange Rate Volatility: A Forecast Evaluation
CORE Discussion Paper No. 2006/21
37 Pages Posted: 3 Aug 2006
Date Written: March 2006
The general-to-specific (GETS) approach to modelling is widely employed in the modelling of economic series, but less so in financial volatility modelling due to computational complexity when many explanatory variables are involved. This study proposes a simple way of avoiding this problem and undertakes an out-of-sample forecast evaluation of the methodology applied to the modelling of weekly exchange rate volatility. Our findings suggest that GETS specifications are especially valuable in conditional forecasting, since the specification that employs actual values on the uncertain information performs particularly well.
Keywords: Exchange Rate Volatility, General to Specific, Forecasting
JEL Classification: C53, F31
Suggested Citation: Suggested Citation