ESTIMATING THE REAL EFFECTIVE EXCHANGE RATE VOLATILITY WITH ARCH AND GARCH MODELS

Serife Ozsahin and Dogan Uysal ()
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Dogan Uysal: Selcuk University

Anadolu University Journal of Social Sciences, 2012, vol. 12, issue 1, 13-20

Abstract: Since real effective exchange rate is the key relative price in international finance, it is required to model sudden changes in the short-run properly. Models which ignore the volatility of these changes would cause erroneous conclusions with regards to relationship among variables. Studies done to model real effective exchange rate generally prefer to utilize ARCH and GARCH specifications. Similarly in this study, current volatility in the TL/Dollar monthly exchange rates from March, 2001 which is the beginning point on which Turkish economy moved into a floating exchange rate regime to May, 2010 was tried to model. It was found evidence that GARCH(1,1) offers the most convenient model to adjust exchange rate volatility in the Turkish economy.

Keywords: Real effective exchange rate; volatility; ARIMA; ARCH and GARCH (search for similar items in EconPapers)
JEL-codes: C13 C22 F31 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:and:journl:v:12:y:2012:i:1:p:13-20

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