General to Specific Modelling of Exchange Rate Volatility: A Forecast Evaluation

CORE Discussion Paper No. 2006/21

37 Pages Posted: 3 Aug 2006

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

Genaro Sucarrat

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Date Written: March 2006

Abstract

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

Bauwens, Luc and Sucarrat, Genaro, General to Specific Modelling of Exchange Rate Volatility: A Forecast Evaluation (March 2006). CORE Discussion Paper No. 2006/21, Available at SSRN: https://ssrn.com/abstract=921349 or http://dx.doi.org/10.2139/ssrn.921349

Luc Bauwens (Contact Author)

Université catholique de Louvain ( email )

CORE
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
32 10 474321 (Phone)
32 10 474301 (Fax)

Genaro Sucarrat

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

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