Volatility transmission in emerging European foreign exchange markets

Abstract

This paper studies the dynamics of volatility transmission between Central European (CE) currencies and the EUR/USD foreign exchange using model-free estimates of daily exchange rate volatility based on intraday data. We formulate a flexible yet parsimonious parametric model in which the daily realized volatility of a given exchange rate depends both on its own lags as well as on the lagged realized volatilities of the other exchange rates.

Keywords

• foreign exchange markets
• volatility
• spillovers
• intraday data
• nonlinear dynamics
• European emerging markets