The economic role of jumps in EUR/USD and USD/JPY exchange rates

Xiao-Ping Li, Chun-Yang Zhou and Chong-Feng Wu

Applied Economics Letters, 2013, vol. 20, issue 15, 1440-1444

Abstract: This study investigates the economic role of jumps in foreign currency market. We fit exchange rates by the stochastic volatility with correlated jumps (SVCJ) model, and use Markov Chain Monte Carlo (MCMC) approach to estimate the model and identify jumps in exchange rates. Our empirical analysis of EUR/USD and USD/JPY exchange rates suggest that SVCJ model is a good characterization for exchange rates. We find that the jumps in the currency markets are closely connected with significant economic and political events.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:20:y:2013:i:15:p:1440-1444

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DOI: 10.1080/13504851.2013.818206

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