Long Memory and Volatility Dynamics in the US Dollar Exchange Rate

Guglielmo Maria Caporale and Luis Gil-Alana

No 975, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: 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. We model both absolute values of returns and squared returns using long-memory techniques, being particularly interested in volatility modelling and forecasting given their importance for FOREX dealers. Compared with previous studies using a standard fractional integration framework such as Granger and Ding (1996), we estimate a more general model 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(d) 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 (search for similar items in EconPapers)
JEL-codes: C22 O40 (search for similar items in EconPapers)
Pages: 37 p.
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn and nep-mst
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Citations: View citations in EconPapers (4)

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https://www.diw.de/documents/publikationen/73/diw_01.c.347170.de/dp975.pdf (application/pdf)

Related works:
Journal Article: Long Memory and Volatility Dynamics in the US Dollar Exchange Rate (2012)
Working Paper: Long Memory and Volatility Dynamics in the US Dollar Exchange Rate (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp975

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