Excess Volatility and Speculative Bubbles in the Canadian Dollar: Real of Imagined?

Abstract

Greater intervention by the public sector is often proposed as a solution to the increased speculation and excessive price volatility through to characterize today's competitive world financial system. However, before any ambitious policy responses can be contemplated, the question whether asset prices are in fact subject to excess volatility needs to be answered. This paper tries to answer the question by using the Canadian dollar as representative asset and testing for excess volatility and speculative bubbles. In the main, the empirical sections of the paper provide little support for the execess volatility argument and the subsequent need for government interventionPRICES;FINANCIAL MARKET