The dynamics of exchange rate volatility: A panel VAR approach
Inessa Love and
Journal of International Financial Markets, Institutions and Money, 2014, vol. 33, issue C, 1-27
This paper employs a panel vector autoregressive model (PVAR) to study the dynamics of the overall exchange rate volatility. PVAR estimation results, based on panel data for 29 economies, are used in simulating impulse response functions. Since economic shocks may affect high-frequency and low-frequency components of volatility differently, using a conventional time-domain approach to study volatility may lead to spurious results. Accordingly, the paper also studies the dynamics of the most destabilizing (high-frequency) components of exchange rate volatility, which are isolated using spectral methodology. While our investigation reveals interesting dynamic interrelationships between macroeconomic as well as financial variables and exchange rate volatility, we find little evidence of significant difference in the responses of macroeconomic and financial variables to the overall volatility vis-à-vis the high-frequency components thereof. The feedback effects from exchange rate volatility to macroeconomic and financial variables are found to be much stronger for developing countries relative to developed economies. These findings are confirmed by variance decompositions and are largely immune to several robustness checks.
Keywords: Exchange rate volatility; Spectral analysis; High-frequency components of volatility; Financial variables; Panel VAR estimation and simulation (search for similar items in EconPapers)
JEL-codes: F31 C14 C33 F37 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:33:y:2014:i:c:p:1-27
Access Statistics for this article
Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely
More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().