Working Paper

Econometric modeling of exchange rate volatility and jumps


Abstract: This chapter reviews the rapid advances in foreign exchange volatility modeling made in the last three decades. Academic researchers have sought to fit the three major characteristics of foreign exchange volatility: intraday periodicity, autocorrelation and discontinuities in prices. Early research modeled the autocorrelation in daily and weekly squared foreign exchange returns with ARCH/GARCH models. Increased computing power and availability of high-frequency data allowed later researchers to improve volatility and jumps estimates. Researchers also found it useful to incorporate information about periodic volatility patterns and macroeconomic announcements in their calculations. This article details these volatility and jump estimation methods, compares those methods empirically and provides some suggestions for further research.

Keywords: Foreign exchange; Time-series analysis;

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2012

Number: 2012-008