Increasing exchange rate volatility during the recent float

Michael Frömmel and Lukas Menkhoff

Applied Financial Economics, 2003, vol. 13, issue 12, 877-883

Abstract: The paper examines empirically whether the volatility of major floating exchange rates shows any systematic change during the period from 1973 to 1998. Four measures for unconditional and conditional volatility demonstrate increasing volatility for most currencies and for two worldwide baskets of exchange rates. Structural breaks are identified for several exchange rates, implying that the volatility increase is in some cases due to upward shifts and not due to continuous changes. This may indicate that in addition to permanent microstructural impacts, macroeconomically-caused shifts are possibly also important for the volatility increase.

Date: 2003
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DOI: 10.1080/0960310022000035847

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