EconPapers    
Economics at your fingertips  
 

A utility based comparison of some models of exchange rate volatility

Kenneth West (), Hali Edison () and Dongchul Cho

No 441, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: When estimates of variances are used to make asset allocation decisions, underestimates of population variances lead to lower expected utility than equivalent overestimates: a utility based criterion is asymmetric, unlike standard criteria such as mean squared error. To illustrate how to estimate a utility based criterion, we use five bilateral weekly dollar exchange rates, 1973-1989, and the corresponding pair of Eurodeposit rates. Of homoskedastic, GARCH, autoregressive and nonparametric models for the conditional variance of each exchange rate, GARCH models tend to produce the highest utility, on average. A mean squared error criterion also favors GARCH, but not as sharply.

Keywords: Econometric models; Foreign exchange rates (search for similar items in EconPapers)
Date: 1993
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (125) Track citations by RSS feed

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/1993/441/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/1993/441/ifdp441.pdf (application/pdf)

Related works:
Journal Article: A utility-based comparison of some models of exchange rate volatility (1993) Downloads
Working Paper: A Utility Based Comparison of Some Models of Exchange Rate Volatility (1992) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:441

Ordering information: This working paper can be ordered from
http://www.federalreserve.gov/pubs/ifdp/order.htm

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ().

 
Page updated 2019-04-22
Handle: RePEc:fip:fedgif:441