* GARCH Model for Exchange Rate Volatility * * Keywords: * garch, stochastic, volatility, ml, deutschmark, pound, exchange rate * * Description: * We model the Stochastic Volatility in Deutschmark/Pound Exchange Rate * with a GARCH(1,1) model * * Author(s): * Noel Roy * Skif Pankov * * Source: * William H. Greene, Econometric Analysis - 7th Edition * Pearson International Edition, Chapter 20, Example 20.6 (page 977) * * Reading the datafile and retrieving variables' names read (TableF20-1.shd) / names * LM test for ARCH effects ?stat y / mean=ybar genr e2=(y-ybar)**2 set nodoecho do #=1,10 genr elag#=lag(e2,#) endo ?ols e2 elag1-elag10 / beg=11 gen1 lm=$n*$r2 distrib lm / type=chi df=10 * Estimating GARCH(1,1) Model by Maximum Likelihood het y / garch=1 stop