Volatility dependence across Asia-Pacific onshore and offshore currency forwards markets

This paper estimates switching autoregressive conditional heteroskedasticity (SWARCH) time series models for weekly returns of nine Asian forward exchange rates. We find two regimes with different volatility levels, whereby each regime displays considerable persistence. Our analysis provides evidence that the knock-on effects from China’s currency forwards markets upon other Asian countries have been modest, in that little evidence exists for co-dependence of volatility regimes. 2009 Elsevier Inc. All rights reserved. * Corresponding author. E-mail addresses: [email protected] (R. Colavecchio), [email protected] (M. Funke). 1 A model of hollowing-out of neighboring countries in the tradition of Romer’s variety expansion model is presented in Kim (2007).