A Functional Approach to Test Trending Volatility

Hernández del Valle Gerardo, Miriam Juarez and Guerrero Santiago
Authors registered in the RePEc Author Service: Gerardo Hernández-del-Valle

No 2016-04, Working Papers from Banco de México

Abstract: In this paper we extend the traditional GARCH(1,1) model by including a functional trend term in the conditional volatility of a time series. We derive the main properties of the model and apply it to all agricultural commodities in the Mexican CPI basket, as well as to the international prices of maize, wheat, pork, poultry and beef products for three different time periods that implied changes in price regulations and behavior. The proposed model seems to adequately fit the volatility process and, according to homoscedasticity tests, outperforms the ARCH(1) and GARCH(1,1) models, some of the most popular approaches used in the literature to analyze price volatility.

Keywords: Agricultural prices; volatility; GARCH models (search for similar items in EconPapers)
JEL-codes: C22 C51 E31 Q18 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-agr, nep-ets, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bdm:wpaper:2016-04

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