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EXCHANGE RISK IN THE EMS: SOME EVIDENCE BASED ON A GARCH MODEL *
Author(s) -
Hassapis Christis
Publication year - 1995
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.1995.tb00616.x
Subject(s) - autoregressive conditional heteroskedasticity , conditional variance , econometrics , volatility (finance) , economics , autoregressive model , variance (accounting) , exchange rate , estimation , heteroscedasticity , variance risk premium , econometric model , variance components , statistics , mathematics , monetary economics , stochastic volatility , volatility risk premium , accounting , management
The paper attempts to detect any changes in the exchange risk as measured by the conditional variance of exchange rate changes before and after foundation of the EMS. The analysis is based on estimation of an econometric model in which the conditional variance is allowed to follow an autoregressive pattern. The results indicate a significant decrease in the volatility of the conditional variance and the risk premium for the EMS countries over the EMS period. No such changes are detected for the non‐EMS countries.