MODELING EXCHANGE RATE VOLATILITY USING GARCH MODELS: EMPIRICAL EVIDENCE FROM PAKISTAN

This study has examined the daily exchange rate of Pakistan country. The Pakistan exchange rate series against US Dollar the span of data is 1st January 2010 to 31st December 2017.This research paper used two specification of generalized autoregressive conditional heteroscedastic (GARCH) model incorporating both symmetric and asymmetric models that found most common facts about Pakistan exchange rate return (RPEX) such as volatility clustering and the leverage effect. The empirical founding shows that the conditional variance (volatility) is hotheaded process in Pakistan currency while it is quite for Pakistani currency against US dollar, which required having the mean reverting variance process. Additionally the asymmetrical EGARCH (1,1) result shows that having a leverage effect in RPEX point out that negative shocks involve a higher next period conditional variance positive shocks of the same enormity. At the end, this research paper concluded that the Pakistan exchange rate volatility could be adequately modeled of the GARCH family. Keywords: clustering, volatility