Structural breaks in volatility: Evidence for the OECD and non-OECD real exchange rates

Morales‐Zumaquero, Amalia; Sosvilla‐Rivero, Simón

doi:10.1016/j.jimonfin.2008.12.006

Cited by 14 publications

(9 citation statements)

References 21 publications

(36 reference statements)

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“…Both the net external position and the portfolio return differentials show larger variance during the period after the collapse of the fixed exchange rate regime. This is consistent with previous studies documenting a more volatile real exchange rate under floating nominal regimes (Morales‐Zumaquero & Sosvilla‐Rivero, ). The influence of net exports growth goes in the opposite direction as there is a reduction in the volatility of the series.…”

Section: Further Evidence: Testing For Structural Breakssupporting

confidence: 93%

“…The real exchange rate plays an important role as one of these mechanisms and the nominal exchange rate regime should play it as well. There is a documented relationship between the real exchange rate and the foreign exchange regime (Morales‐Zumaquero & Sosvilla‐Rivero, ), with the real exchange rate being less volatile under fixed exchange rate regimes. Because of that, floating regimes may induce larger imbalances and faster corrections.…”

Section: Introductionmentioning

confidence: 99%

“… In principle, as long as the nominal exchange rate regime changes the behaviour of the real exchange rate, for example, Morales‐Zumaquero and Sosvilla‐Rivero (), the external adjustment process could change as well. …”

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confidence: 99%

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Exchange rate regime and external adjustment: An empirical investigation for the US

Fuertes

2018

World Economy

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This paper analyses the relationship between the US net external position and the exchange rate regime. I find a structural break in the US net external position at the end of the Bretton Woods system of fixed exchange rates that changed both the mean and variance of the series. On average, the US changed from a creditor to a debtor position and the variance of the external position increased during the floating period. This increase is to a large extent due to the valuation component of external adjustment that accounts for 54% of the variance of the US external position during the floating period but only 29% during the fixed exchange rate period. Further analysis shows that the exchange rate regime mainly affects the valuation channel of external adjustment. There is also evidence of another structural break in the US external position around the time of the introduction of the euro. Finally, I document asset pricing implications from the relationship between the exchange rate regime and the external adjustment process, as external imbalances predict the foreign exchange once the exchange rate regime is taken into account.

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Section: Further Evidence: Testing For Structural Breakssupporting

confidence: 93%

Section: Introductionmentioning

confidence: 99%

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Exchange rate regime and external adjustment: An empirical investigation for the US

Fuertes

2018

World Economy

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“…Banerjee and Urga (2005) exhibit the instances of econometric modelling for structural breaks in long-memory volatility and the co-integration among volatility. Morales-Zumaquero and Sosvilla-Rivero (2010), in a study on the volatility of foreign exchange, find evidence of structural breaks. Morales and Gassie-Falzone (2014) also demonstrate instances of structural breaks while studying the volatility spillover between crude-oil markets and stock markets.…”

Section: Review Of Literaturementioning

confidence: 99%

Volatility Integration in Spot, Futures and Options Markets: A Regulatory Perspective

Rastogi

Athaley

2019

JRFM

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The aim of this paper is to study the integration of volatility in the three markets, viz. spot, futures and options, in order to provide input for hedging purposes and the formulation of policies for derivatives. The generalized method of moments (GMM) is used to capture the simultaneous equation modelling of volatility in the three markets. The integration of the volatility in the three markets is also tested for structural breaks. The main finding of the paper is that the volatility in the options market is not associated with volatility in spot and futures market. However, volatility in spot and futures markets are associated with each other. As a consequence, investors can use options for hedging purposes and policy makers do not need to be concerned about the imminent impact of options markets on spot markets. To the best of the authors’ knowledge, there is no other study which discusses the integration of volatility in the three markets. Moreover, the finding of this paper that the options market behaves differently compared to the futures market has also not been discussed in earlier studies.

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“…With regards to the principal determinants of exchange rate volatility, the focus has been almost exclusively on macroeconomic fundamentals and structural characteristics of the foreign exchange market. Among the key findings in this literature is a positive link between real exchange rate volatility and the flexibility of nominal exchange rates (Baxter & Stockman, ; Flood & Rose, , ; Levy‐Yeyati & Sturzenegger, ; Morales‐Zumaquero & Sosvilla‐Rivero, ; Mussa, ). The relationship between exchange rate volatility and economic openness, on the other hand, is less clear.…”

Section: Literature Overview and Conceptual Frameworkmentioning

confidence: 99%

Soft power and exchange rate volatility

Cevik

Harris

Yılmaz

2017

International Finance

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Standard models-based exclusively on macro-financial variables-have made little progress in explaining the behaviour of exchange rates. In this paper, we introduce a neglected set of 'soft power' factors capturing a country's demographic, institutional, political, and social underpinnings to shed some light on the 'missing' determinants of exchange rate volatility over time and across countries. Based on a balanced panel dataset comprising 115 countries during the period 1996-2015, the empirical results are generally robust across different estimation methodologies and show a high degree of persistence in exchange rate volatility. After controlling for standard macroeconomic factors, we find that the 'soft power' variables-such as an index of voice and accountability, life expectancy, educational attainments, fragility of the banking sector, financial openness, and the share of agriculture relative to services-have a statistically significant influence on the level of exchange rate volatility across countries. In other words, countries with greater 'soft power' (i.e. better institutional quality) tend to experience a lower degree of exchange rate volatility.

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Structural breaks in volatility: Evidence for the OECD and non-OECD real exchange rates

Cited by 14 publications

References 21 publications

Exchange rate regime and external adjustment: An empirical investigation for the US

Exchange rate regime and external adjustment: An empirical investigation for the US

Volatility Integration in Spot, Futures and Options Markets: A Regulatory Perspective

Soft power and exchange rate volatility

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