Nominal Exchange Rate Volatility in Costa Rica

Alberto Vindas-Quesada ()
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Alberto Vindas-Quesada: Department of Economic Research, Central Bank of Costa Rica

No 2303, Notas Técnicas from Banco Central de Costa Rica

Abstract: This technical note makes a recount of the volatility of the exchange rate of the Costa Rican colon with respect to the US dollar since 1983. This is done through two common volatility measures: a stardard deviation and a GARCH volatility estimate. Historically, eight high volatility episodes are identified. These happened mostly during the exchange rate band regime, which is also the regime that showed higher volatility, on average. To complement this analysis, the volatility measures are compared to a group of 154 additional currencies. This leads to the conclusion that only two of the high volatility episodes can be considered of high volatility, internationally. In addition, that most of the time, there are more currencies showing a higher volatility than the colon than currencies showing lower volatility. En esta nota técnica se hace un recuento de la volatilidad del tipo de cambio del colon con respecto al dólar a partir de 1983. Para ello, se calculan dos medidas de volatilidad comúnmente utilizadas: la desviación estándar y la volatilidad GARCH. Históricamente, se identifican ocho episodios de alta volatilidad del colon. Estos se concentran dentro del régimen de banda cambiaria, que en promedio fue el que mostro una volatilidad superior. Para complementar el análisis, se compara la volatilidad del colon con la de 154 monedas adicionales. Esto permite concluir que solo dos de los episodios identificados son de volatilidad alta a nivel internacional. Adicionalmente, que la mayoría del tiempo hay más monedas con mayor volatilidad que el colon que monedas con menor volatilidad.

Keywords: Nominal Exchange Rate; Standard Deviation; Stochastic Volatility; GARCH Models; Volatilidad estocástica; Desviación estándar (search for similar items in EconPapers)
JEL-codes: F40 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2023-07
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