Volume 16, Numbers 1 & 2 / March/June , Pages 1-154
Long Memory and Volatility Dynamics in the US Dollar Exchange Rate
Multinational Finance Journal, 2012, vol. 16, no. 1/2, pp. 105-136
Guglielmo Maria Caporale , Brunel University, UK    Corresponding Author
Luis Gil-Alana , University of Navarra, Spain

This paper focuses on nominal exchange rates, specifically the US dollar rate vis-à-vis the Euro and the Japanese Yen at a daily frequency. In the paper both absolute values of returns and squared returns are modelled using long-memory techniques, being particularly interested in volatility modelling and forecasting. Compared with previous studies using fractional integration such as Granger and Ding (1996), a more general model is estimated, which allows for dependence not only at the zero but also at other frequencies. The results show differences in the behaviour of the two series: a long-memory cyclical model and a standard I(1) model seem to be the most appropriate for the US dollar rate vis-à-vis the Euro and the Japanese Yen respectively.

Keywords : Fractional integration; Long memory; Exchange rates, Volatility
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