How do monetary shock, financial crisis, and quotation reform affect the long memory of exchange rate volatility? Evidence from major currencies

Xinyu Wang, Zikang Qi and Jianglu Huang

Economic Modelling, 2023, vol. 120, issue C

Abstract: Although it is widely accepted that various information flows entering a non-fully efficient foreign exchange market synergistically cause the long memory of volatility, the impact of monetary shock, an important determinant of exchange rates, has not been thoroughly investigated. We propose a new mixed-frequency long-memory time series model to analyze this. We find that monthly monetary shock has a positive effect on the long memory in countries with floating exchange rate regimes, but not for China, which has a managed floating exchange rate regime. Besides, the global financial crisis and the Chinese Yuan mid-price quotation reform in 2015 changed the pattern of exchange rate volatility, especially in export-oriented economies such as Korea and Australia. By analyzing the event backgrounds, we find that Australia’s decreased post-crisis market interventions and China’s market-oriented quotation reform both helped reduce the long memory. Our model performs well in forecasting the exchange rate risk.

Keywords: Long memory; Exchange rate volatility; Monetary shocks; Event shocks; Mixed-frequency data; Value at risk (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999322003923
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:120:y:2023:i:c:s0264999322003923

DOI: 10.1016/j.econmod.2022.106155

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().