Many researchers use GARCH models to generate volatility forecasts. We show, however, that such forecasts are too … variable. To correct for this, we extend the GARCH model by distinguishing two regimes with different volatility levels. GARCH … terms only. The empirical application on U.S. dollar exchange rates shows that our model indeed yields better volatility …

This paper is concerned with issues of model specification, identification, and estimation in exchange rate models with …