General to specific modelling of exchange rate volatility: a forecast evaluation
Luc Bauwens () and
Economics Working Papers from Universidad Carlos III, Departamento de Economía
The general-to-specific (GETS) methodology 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 when the conditional mean can appropriately be restricted to zero, 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 perform comparatively well in both ex post and ex ante forecasting as long as sufficient care is taken with respect to functional form and with respect to how the conditioning information is used. Also, our forecast comparison provides an example of a discrete time explanatory model being more accurate than realised volatility ex post in 1 step forecasting.
Keywords: Exchange rate volatility; General to specific; Forecasting (search for similar items in EconPapers)
JEL-codes: C53 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-for and nep-ifn
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Journal Article: General-to-specific modelling of exchange rate volatility: A forecast evaluation (2010)
Working Paper: General to specific modelling of exchange rate volatility: a forecast evaluation (2006)
Working Paper: General to Specific Modelling of Exchange Rate Volatility: a Forecast Evaluation (2006)
Working Paper: General-to-specific modelling of exchange rate volatility: a forecast evaluation
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Persistent link: http://EconPapers.repec.org/RePEc:cte:werepe:we081810
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