Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model

F.J.G.M. Klaassen

Research output: Working paperDiscussion paperOther research output

230 Downloads (Pure)

Abstract

We analyze the time-dependence of exchange rate correlations using a new multivariate GARCH model. This model consists of two parts. First, we transform the exchange rate changes into their principal components and specify univariate GARCH models for all components. Second, we use the inverse of the principal components construction to transform the condi- tional component moments back into those of the exchange rate changes themselves. The model is easy to estimate, as it requires only univariate GARCH estimations. Nevertheless, it outperforms the popular constant conditional correlations and factor GARCH models. We find that the ma- jor U.S. dollar exchange rates have become more loosely instead of closely tied since the eighties.
Original languageEnglish
Place of PublicationTilburg
PublisherEconometrics
Number of pages30
Volume1999-10
Publication statusPublished - 1999

Publication series

NameCentER Discussion Paper
Volume1999-10

Fingerprint

Multivariate GARCH models
Exchange rates
Principal components
GARCH model
Generalized autoregressive conditional heteroscedasticity
Conditional correlation
Time dependence
Factors

Keywords

  • Correlations
  • multivariate models
  • GARCH
  • factor models
  • exchange rates

Cite this

Klaassen, F. J. G. M. (1999). Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model. (CentER Discussion Paper; Vol. 1999-10). Tilburg: Econometrics.
Klaassen, F.J.G.M. / Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model. Tilburg : Econometrics, 1999. (CentER Discussion Paper).
@techreport{af43cd1c96564e45bfd1f60ece37551b,
title = "Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model",
abstract = "We analyze the time-dependence of exchange rate correlations using a new multivariate GARCH model. This model consists of two parts. First, we transform the exchange rate changes into their principal components and specify univariate GARCH models for all components. Second, we use the inverse of the principal components construction to transform the condi- tional component moments back into those of the exchange rate changes themselves. The model is easy to estimate, as it requires only univariate GARCH estimations. Nevertheless, it outperforms the popular constant conditional correlations and factor GARCH models. We find that the ma- jor U.S. dollar exchange rates have become more loosely instead of closely tied since the eighties.",
keywords = "Correlations, multivariate models, GARCH, factor models, exchange rates",
author = "F.J.G.M. Klaassen",
note = "Pagination: 30",
year = "1999",
language = "English",
volume = "1999-10",
series = "CentER Discussion Paper",
publisher = "Econometrics",
type = "WorkingPaper",
institution = "Econometrics",

}

Klaassen, FJGM 1999 'Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model' CentER Discussion Paper, vol. 1999-10, Econometrics, Tilburg.

Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model. / Klaassen, F.J.G.M.

Tilburg : Econometrics, 1999. (CentER Discussion Paper; Vol. 1999-10).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model

AU - Klaassen, F.J.G.M.

N1 - Pagination: 30

PY - 1999

Y1 - 1999

N2 - We analyze the time-dependence of exchange rate correlations using a new multivariate GARCH model. This model consists of two parts. First, we transform the exchange rate changes into their principal components and specify univariate GARCH models for all components. Second, we use the inverse of the principal components construction to transform the condi- tional component moments back into those of the exchange rate changes themselves. The model is easy to estimate, as it requires only univariate GARCH estimations. Nevertheless, it outperforms the popular constant conditional correlations and factor GARCH models. We find that the ma- jor U.S. dollar exchange rates have become more loosely instead of closely tied since the eighties.

AB - We analyze the time-dependence of exchange rate correlations using a new multivariate GARCH model. This model consists of two parts. First, we transform the exchange rate changes into their principal components and specify univariate GARCH models for all components. Second, we use the inverse of the principal components construction to transform the condi- tional component moments back into those of the exchange rate changes themselves. The model is easy to estimate, as it requires only univariate GARCH estimations. Nevertheless, it outperforms the popular constant conditional correlations and factor GARCH models. We find that the ma- jor U.S. dollar exchange rates have become more loosely instead of closely tied since the eighties.

KW - Correlations

KW - multivariate models

KW - GARCH

KW - factor models

KW - exchange rates

M3 - Discussion paper

VL - 1999-10

T3 - CentER Discussion Paper

BT - Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model

PB - Econometrics

CY - Tilburg

ER -

Klaassen FJGM. Have Exchange Rates Become More Closely Tied? Evidence from a New Multivariate GARCH Model. Tilburg: Econometrics. 1999. (CentER Discussion Paper).