Volatility Clustering and Volatility Transmission: A Non-Parametric View of ERM Exchange Rates

Michael Artis and Wenda Zhang

No 1594, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper considers the evidence for volatility clustering and transmission in six bilateral Deutsche mark ERM exchange rates. Data on daily exchange rate changes are described by a mixture of two normal distributions. One of these contains observations of volatile exchange rate changes while the other pertains to tranquil periods. Using the information given by the two distributions, each observation is classified to one or other category. The phenomenon of volatility clustering in a given bilateral exchange rate series is then studied by means of a non-parametric test, while volatility transmission across exchange rates is studied by means of non-parametric tests for independence.

Keywords: ERM; Exchange Rates; Volatility Clustering; Volatility Transmission (search for similar items in EconPapers)
JEL-codes: C14 F31 G10 G12 (search for similar items in EconPapers)
Date: 1997-03
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