Volatility of a Seemingly Fixed Exchange Rate

Kocenda, Evzen (1995): Volatility of a Seemingly Fixed Exchange Rate. Published in: Eastern European Economics , Vol. 34, No. 6 (1996): pp. 37-67.

Abstract

A conditional variance analysis is applied to study the exchange rate of the Czech crown. The crown is pegged to a currency basket with an imposed narrow band. The central bank’s consistent policy enables the semi-fixed exchange rates to behave similarly to free ones. Their movements exhibit strong nonlinear dependency which is accounted for by an employment of the GARCH(1,1) model with daily dummies. The nonparametric BDS test proclaims accuracy of the model that filtered out nonlinearity and captured a forecastable structure present in the data.

• Item Type: MPRA Paper
• Language: English
• Keywords: exchange rates, currency basket, nonlinearity, GARCH
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G1 - General Financial Markets > G10 - General

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