Monitoring structural change in variance
With an application to European nominal exchange rate volatility
In this paper we propose a sequential testing approach for a structural change in the variance of a time series, which amounts to a procedure with a controlled asymptotic size as we repeat the test. Our approach builds on that taken in Chu, Stinchcombe and White (1996) for structural change in the parameters of a linear regression model. We provide simulation evidence to examine the empirical size and power of our procedure. We apply our approach to 14 weekly observed European exchange rates for 1985-1998 and we find ample evidence for the presence of structural changes in nominal exchange rate volatility, where generally a reduction of volatility is found.
|, , ,|
|Econometric Institute Research Papers|
|Organisation||Erasmus School of Economics|
Carsoule, F, & Franses, Ph.H.B.F. (1999). Monitoring structural change in variance (No. EI 9925A). Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/1596
|feweco19990625145441.pdf Final Version , 1mb|