Bayesian comparison of bivariate ARCH-type models for the main exchange rates in Poland

We use the daily zloty (PLN) values of the US dollar (USD) and German mark (DEM) to compare various bivariate ARCH-type models through their Bayes factors. We start with three non-nested, conditionally Student t specifications: the VechGARCH(1,1) model, Bollerslevʹs (Rev. Econom. Statist. 72 (1990) 498) constant conditional correlation model and a latent factor GARCH model. Since only the first model explains the data relatively well, but uses too many parameters, we examine its special cases, including a simple t-BEKK(1,1) specification that has very high Bayes factors against most of other models.