Home About Latest Browse RSS Advanced Search

Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
A utility based comparison of some models of exchange rate volatility
Kenneth D. West
Hali J. Edison
Dongchul Cho
Abstract

When estimates of variances are used to make asset allocation decisions, underestimates of population variances lead to lower expected utility than equivalent overestimates: a utility based criterion is asymmetric, unlike standard criteria such as mean squared error. To illustrate how to estimate a utility based criterion, we use five bilateral weekly dollar exchange rates, 1973-1989, and the corresponding pair of Eurodeposit rates. Of homoskedastic, GARCH, autoregressive and nonparametric models for the conditional variance of each exchange rate, GARCH models tend to produce the highest utility, on average. A mean squared error criterion also favors GARCH, but not as sharply.


Download Full text
Download Full text
Cite this item
Kenneth D. West & Hali J. Edison & Dongchul Cho, A utility based comparison of some models of exchange rate volatility, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 441, 1993.
More from this series
JEL Classification:
Subject headings:
Keywords: Econometric models ; Foreign exchange rates
For corrections, contact FRB Librarian ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal