SHARE   Share on Twitter Share on Facebook Email

Target Zones and Conditional Volatility: The Role of Realignments.

This paper examines the relationship between the conditional volatility of target zone exchange rates and realignments of the system. To investigate this question, modified jump diffusion Generalized Autoregressive Conditional Heteroskedasticity (GARCH) and absolute value GARCH models are fit to six exchange rates of the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS). Time-varying jump probability and absolute value GARCH models are effective in improving the fit of jump-diffusion models on target zone data. There is some evidence that conditional volatility is higher around the periods of realignments.

Read Full Text (137K)


Subscribe to our newsletter for updates on published research, data news, and latest econ information.
Name:   Email:  
Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo