Measures of Dynamic Connectednesss Based on DCC-GARCH: The Role of Volatility Transmission Mechanisms

Abstract

This study introduces volatility impulse response functions (VIRF) for DCC-GARCH models. In addition, the implications with respect to network analysis is illustrated by using the connectedness approach of Diebold and Yılmaz (2014) which rests on VIRFs. The advantage of this framework is that it does not underlie a rolling-window approach. An empirical analysis on the volatility trans- mission mechanism across foreign exchange rate returns is discussed. The findings point out that the CHF and the EUR are net volatility transmitters of shocks whereas the GBP and JPY are net volatility receivers of shocks.