Robustness and Exchange Rate Volatility

Edouard Djeutem and Kenneth Kasa

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: This paper studies exchange rate volatility within the context of the monetary model of exchange rates. We assume agents regard this model as merely a benchmark, or reference model, and attempt to construct forecasts that are robust to model misspecification. We show that revisions of robust forecasts are more volatile than revisions of nonrobust forecasts, and that empirically plausible concerns for model misspecification can easily explain observed exchange rate volatility.

Keywords: Exchange rates; Volatility; Robustness (search for similar items in EconPapers)
JEL-codes: D81 F31 (search for similar items in EconPapers)
Pages: 22
Date: 2012-03
New Economics Papers: this item is included in nep-cba, nep-for, nep-mon and nep-opm
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Journal Article: Robustness and exchange rate volatility (2013)
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