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## General to Specific Modelling of Exchange Rate Volatility: A Forecast Evaluation (2006)

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Citation Context ...n always be improved. 2 The term ”congruent” is borrowed from geometry: By ”analogy with one triangle which matches another in all respects, the model matches the evidence in all measured respects.” (=-=Hendry 1995-=-, p. 365) 4sGETS modelling derives its basis from statistical reduction theory in general and Hendry’s reduction theory (1995, chapter 9) in particular, 3 which is a probabilistic framework for the an... |

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Citation Context ...s of the ARCH-class, since this essentially undermines their raison d’être. The second specification is an exponentially weighted moving average (EWMA) with parameter values suggested by RiskMetrics (=-=Hull 2000-=-, p. 372). 14 RiskMetrics proposed these values after having compared a range of combinations on various financial time series. The third specification is an EWMA with estimated parameters whereas the... |

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Citation Context ...essions is a simple but useful excercise in the evaluation of such models compared with statistical mean squared forecast error (MSE) tests like, say, the popular modified Diebold-Mariano (MDM) test (=-=Harvey et al. 1997-=-). The rest of the paper is divided into four sections. The next section gives a brief exposition of the GETS methodology, and presents the EMOV and its relation with the more common ARCH and SV model... |

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Citation Context ...ated against realised volatility, which they define as the sum of squared intra period squared returns, since ”it corresponds directly to the notion of volatility entertained in diffusion models...” (=-=Andersen et al. 1999-=-, p. 458). There are at least three objections to this view from an explanatory perspective. The first is that one is restricted to work within the continuous time diffusion framework as if it constit... |

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Citation Context ... GETS methodology treats modelling as a process, where the aim is to derive a parsimonious congruent encompassing model while at the same time acknowledging that ”the currently best available model” (=-=Hendry and Richard 1990-=-, p. 323) can always be improved. 2 The term ”congruent” is borrowed from geometry: By ”analogy with one triangle which matches another in all respects, the model matches the evidence in all measured ... |

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Citation Context ...th dependence”, in the sense that a relevant variable being removed early on in the search whereas irrelevant variables that proxy its role are retained. However, the software PcGets version 1.0 (see =-=Hendry and Krolzig 2001-=-), which automates GETS multiple-path simplification search, produces a specification almost identical to (12), the only difference being that vw t−2 is not retained. So path-dependence does not appea... |

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Citation Context ...ilistic, economic and practical reasons, starting from (3) as if it were the theoretical mechanism may actually constitute a very strong assumption—in particular in explanatory econometric modelling (=-=Sucarrat 2008-=- contains a more complete discussion). First, for probabilistic reasons the set of possible worlds in which (3) is congruent is likely to be much smaller than the set of possible worlds in which (2) i... |

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Citation Context ...ifically the simplified model is GETS EMOV1: vwt = b0 + b2(v w t−2 + v w t−3) + b6∆qt + b7m w t + b9(x w t + u w t ) + b12f b t + b13ir emu t + b14sdt + νt. (13) The Autometrics feature of PcGive 12 (=-=Doornik and Hendry 2007-=-, Doornik 2008), a software that automates GETS specification search, was used in the derivation of GETS EMOV1 with a chosen 10% level both for regressor significance and diagnostic testing.9 The soft... |

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Citation Context ...y model is said to be congruent if it is a congruent representation of the theory mechanism, that is, the joint density that precedes the DGP in Hendry’s reduction theory (see Hendry 1995, p. 345 and =-=Sucarrat 2007-=-). Now, consider the continuous time model r(t) = A(t) +M(t), (3) where r(t) is the log-return p(t) − p(0) of the asset price under study from time 0 to t, A(t) is a locally integrable and predictable... |

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(Show Context)
Citation Context ...odel is GETS EMOV1: vwt = b0 + b2(v w t−2 + v w t−3) + b6∆qt + b7m w t + b9(x w t + u w t ) + b12f b t + b13ir emu t + b14sdt + νt. (13) The Autometrics feature of PcGive 12 (Doornik and Hendry 2007, =-=Doornik 2008-=-), a software that automates GETS specification search, was used in the derivation of GETS EMOV1 with a chosen 10% level both for regressor significance and diagnostic testing.9 The software proposes ... |

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