In this paper we show how IGARCH effects can arise as an artifact of unaccounted structural change. Using daily returns for the DM/US$ and Yen/US$ exchange rates, the finding is shown to have empirical relevance. GARCH models appear to be useful approximations, for short term forecasting, to a...

In this paper we test for the existence of long memory and structural breaks in the realized variance process for the DM/US$ and Yen/US$ exchange rates. While long memory is evident in the actual processes, a structural break analysis reveals that this feature is partially explained by...

This paper introduces a new long memory volatility process, denoted by Adaptive FIGARCH, or A-FIGARCH, which is designed to account for both long memory and structural change in the conditional variance process. Structural change is modeled by allowing the intercept to follow a slowly varying...

What are the causes of exchange rate volatility? When second moments implications of theories of exchange rates determination are considered, long-term fundamental linkages between macroeconomic and exchange rate volatility can be envisaged. Moreover, as the exchange rate is an important...

We compare the computation of Value at Risk with daily and with high frequency data for the Deutschmark-US dollar exchange rate. Among the main points considered in the paper are: (a) the comparison of measures of Value at Risk on the basis of multi-step volatility forecasts; (b) the computation...

We introduce a model for the analysis of intraday volatility of exchange rates returns, based on the structural time series methodology. The stochastic seasonal component is useful to model intra-day effects which may be different from one day to the other. The model is estimated with high...

What are the causes of exchange rate volatility? When second moments implications of theories of exchange rates determination are considered, long-term fundamental linkages between macroeconomic and exchange rate volatility can be envisaged. Moreover, as the exchange rate is an important...

This paper introduces a new long memory volatility process, denoted by Adaptive <i>FIGARCH</i>, or <i>A-FIGARCH</i>, which is designed to account for both long memory and structural change in the conditional variance process. Structural change is modeled by allowing the intercept to follow a slowly varying...

Is there a short- to medium-term linkage between macroeconomic and exchange rate volatility? This paper provides a clear-cut answer to the above question, pointing to significant linkages and trade-offs between macroeconomic and exchange rate volatility, particularly involving output volatility....