The Modelling of Exchange Rate Volatility Using Arch-Garch Models: The Case of Turkey

OpenAlex · English

This study investigates the most appropriate method for modelling the volatility for nominal exchange rate by using the ARCH type models. The research covers the period of 2002-2017 of nominal exchange rate using daily data. It is observed that the volatility of nominal exchange rate has the ARCH effect and the most appropriate model for forecasting the volatility of nominal exchange rate is GARCH(1,2) because it has the lowest Akaike Information Criterion. Furthermore, during the crises and uncertain periods, the volatility of nominal exchange rate series increases and volatility clustering is observed, meaning high volatility tends to follow high volatility and it is true for vice versa.