MODELLING ASYMMETRIC EXCHANGE RATE DEPENDENCE

Andrew Patton

International Economic Review, 2006, vol. 47, issue 2, 527-556

Abstract: We test for asymmetry in a model of the dependence between the Deutsche mark and the yen, in the sense that a different degree of correlation is exhibited during joint appreciations against the U.S. dollar versus during joint depreciations. We consider an extension of the theory of copulas to allow for conditioning variables, and employ it to construct flexible models of the conditional dependence structure of these exchange rates. We find evidence that the mark-dollar and yen-dollar exchange rates are more correlated when they are depreciating against the dollar than when they are appreciating. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2006
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