Modelling Exchange Rate Volatility: Evidence from Sweden

Per-Ola Maneschiöld ()
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Per-Ola Maneschiöld: Halmstad University, School of Business and Engineering, Department of Economics, Postal: Box 823 S-301 18 Halmstad Sweden,, http://www.hh.se/

Economia Internazionale / International Economics, 2004, vol. 57, issue 2, 145-172

Abstract: This paper analyses the volatility of eight Swedish bilateral exchange rates over the recent floating period as a small country case. Various econometric tests are performed to identify and analyse the presence of ARCH effects using data from November 1992 to March 1998. Furthermore, the presence of asymmetries in the volatility is tested by the use of the sign bias test and formal ARCH models that incorporate the possibility of such asymmetries in the data. The sign bias test reveals no significant evidence of asymmetries, which then suggests that it is appropriate to fit the standard ARCH models to the data. However, the less restrictive ARCH models, which allow for asymmetric effects, do contradict the sign bias test for three out of eight exchange rates. This then indicates the importance of combining different tests to examine the same type of effect when modelling volatility in exchange rate data. The hypothesis that the ARCH effect diminishes with a lower frequency in the data is furthermore tested by the use of daily, weekly, and monthly frequencies. Five out of eight exchange rates did support the hypothesis but the more frequently traded currencies did contradict the hypothesis.

JEL-codes: C22 F31 (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ecoint:0135

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