Modelling exchange rate variations and global shocks in Brazil

Harold Ngalawa () and Adebayo Augustine Kutu ()
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Harold Ngalawa: School of Accounting, Economics & Finance, University of KwaZulu-Natal, Durban, Republic of South Africa
Adebayo Augustine Kutu: School of Accounting, Economics & Finance, University of KwaZulu-Natal, Durban, Republic of South Africa

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2017, vol. 35, issue 1, 73-95

Abstract: The purpose of this paper is to model variations of Brazil’s exchange rates and global shocks in order to establish if global oil prices and international interest rates (global shocks) have any impact on exchange rate variations in Brazil. After establishing the existence of ARCH effects and ensuring the stationarity of the data set, we estimate the symmetric GARCH (1,1) model along with two asymmetric EGARCH (1,1) and APARCH (1,1) models using the theoretical model of Kamal et al. (2012). The results show that the GARCH (1,1) model provides the best fit for Brazil’s exchange rate variations while the model selection chooses the Student’s t distribution as the preferable model of good fit compared to the alternatives. The study results show that Brazil’s exchange rates are significantly influenced by global shocks. Accordingly, we recommend that the Brazilian government should consider the impact of oil prices and global interest rates when formulating and implementing policies that impact on the exchange rate.

Keywords: modelling exchange rate variations; GARCH; EGARCH and APARCH models (search for similar items in EconPapers)
JEL-codes: E1 E3 F1 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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