Evidence on the stochastic structure of exchange rates in the inter-war period

Abstract

Investigations of the behaviour of exchange rates during the recent period of float have uncovered a number of robust results such as a random walk in spot rates, the presence of ARCH effects and the existence of common stochastic trends. Data on six exchange rates during the inter-war float are examined. These appear to be non-stationary and are characterized by conditional heteroscedasticity though there is little evidence of cointegration. Evidence of the transmission of volatility between markets is uncovered.