This paper discusses the interdependent effects of conditional volatilities in returns of the Euro and other major currencies against U.S. dollar exchange rates (spot rates) since the launch of the Euro, using, for this purpose, the daily data and dynamic conditional correlation (DCC)–GARCH model with country-specific effects. The following conclusions are drawn: there are volatility spillovers (contemporaneous and lagged) in the Euro, Yen, and British pound, the degree of the correlation is high between the Euro and British pound against the U.S. dollar, there is a very strong association between the ECB Euro reference rate (fixing rates) and U.S.-traded spot rates, and finally, the impulse-response of volatility (after the accession of new Member States to the European Union) rapidly diminishes in the spot markets, indicating a short-run dynamic effect.
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Pérez-Rodríguez, J.V. The Euro and Other Major Currencies Floating Against the U.S. Dollar. Atl Econ J 34, 367–384 (2006). https://doi.org/10.1007/s11293-006-9042-x
- DCC–GARCH models
- impulse-response functions of volatility