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Modelling exchange rate dynamics new perspectives from the frequency domain
Author(s) -
Nachane D. M.,
Ray D.
Publication year - 1993
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.3980120502
Subject(s) - frequency domain , econometrics , unit root test , bilinear interpolation , exchange rate , unit root , autoregressive conditional heteroskedasticity , autoregressive model , random walk , dynamics (music) , statistics , computer science , mathematics , economics , volatility (finance) , cointegration , macroeconomics , physics , acoustics , computer vision
In this paper the dynamics of foreign exchange rates is sought to be studied via new frequency domain techniques. Stationarity properties of the rates are analysed via a unit root test as well as a test based on the evolutionary spectrum. Linearity and Gaussianity are analysed via bispectral tests and compared with the more frequently employed time domain tests, such as the McLeod‐Li and Tsay tests. Finally, an evaluation of the out‐of‐sample forecasting properties for eight methods—Random Walk, ARMA, Bilinear, State dependent model, dynamic linear model, ARCH, GARCH, and Garch‐in‐mean—is made. The methods used here seem to shed a great deal of light on hitherto neglected aspects of exchange rate dynamics.