Volatility Analysis of the Romanian Exchange Rate

Volatility has been traditionally analysed from the perspective of economic cycles and only recently as an autonomous process with a major influence on different macroeconomic approaches. Volatility is associated with risk in the sense that it offers a measure of possible variations of economic variables and the increased volatility of the markets can trigger economic crises as it can be seen in economic history. The paper intends to analyse the volatility of the leu/euro exchange rate taken into account the influence of the volatility of other currencies and other fundamental macroeconomic variables. The analysis is based on specific methods for high frequency time series. The database is comprised of daily time series for the period 05.01.2000-31.08.2013. The application of different ARCH-GARCH models indicate that the volatility of the leu/euro exchange rate follows an ARCH process, that there is a high asymmetry in the evaluation of information regarding the evolution of the exchange rate and that the exchange rate returns are correlated with volatility.