Model Uncertainty and Exchange Rate Volatility

Research output: Contribution to journalArticleAcademicpeer-review

13 Citations (Scopus)

Abstract

This article proposes an explanation for shifts in the volatility of exchange-rate returns. Agents are uncertain about the true data generating model and deal with this uncertainty by making inference on the models and their parameters' approach, I call model learning. Model learning may lead agents to focus excessively on a subset of fundamental variables. Consequently, exchange-rate volatility is determined by the dynamics of these fundamentals and changes as agents alter models. I investigate the empirical relevance of model learning and find that the change in volatility of GBP/USD in 1993 was triggered by a shift between models.
Original languageEnglish
Pages (from-to)815-843
Number of pages29
JournalInternational Economic Review
Volume53
Issue number3
DOIs
Publication statusPublished - 2012

Fingerprint

Dive into the research topics of 'Model Uncertainty and Exchange Rate Volatility'. Together they form a unique fingerprint.

Cite this