Econometric modeling of exchange rate volatility and jumps

Deniz Erdemlioglu, Sébastien Laurent and Christopher Neely

No 2012-008, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This chapter reviews the rapid advances in foreign exchange volatility modeling made in the last three decades. Academic researchers have sought to fit the three major characteristics of foreign exchange volatility: intraday periodicity, autocorrelation and discontinuities in prices. Early research modeled the autocorrelation in daily and weekly squared foreign exchange returns with ARCH/GARCH models. Increased computing power and availability of high-frequency data allowed later researchers to improve volatility and jumps estimates. Researchers also found it useful to incorporate information about periodic volatility patterns and macroeconomic announcements in their calculations. This article details these volatility and jump estimation methods, compares those methods empirically and provides some suggestions for further research.

Keywords: Foreign exchange; time series analysis (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ecm and nep-mst
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Chapter: Econometric modeling of exchange rate volatility and jumps (2013)
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DOI: 10.20955/wp.2012.008

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