ACL-2International audienceThis article examines the volatility dependence between crude oil market and four US dollar exchange rates by means of both fractional cointegration and copula techniques. The former exploits the long memory behavior of volatility processes to investigate whether they are tied through a common long-run equilibrium. The latter is complementary as it allows exploring whether the market volatility is linked over the short run. The cointegration results conclude in favor of long-run independence for the Canadian and Japanese exchange rates while few evidence of long-run dependence is found for the European and British exchange rates. Concerning the copula analysis, we conclude in favor of weak dependence when we consider the static copulas. Considering the time-varying copulas, it appears that dependence is sensitive to market conditions as we found increasing linkages just before the 2008 market collapse and more recently, in the aftermath of the European debt crisis
This paper attempts to analyze the relationships between the ASEAN-5 countries' business cycles. We examine the nature of business cycles correlation trying to disentangle between regional spillover effects (expansion and recession phases among the ASEAN-5 are correlated) and global spillovers where the business cycles of other countries (China, Japan and the US) play an important role in synchronizing the activity within the ASEAN-5. We employ a time-varying transition probability Markov switching framework in order to allow the degree of synchronization to fluctuate over time and across the phases of the business cycles. We provide evidence that the signals contained in some leading business cycles can impact the ASEAN-5 countries' individual business cycles.Keywords: OCA, East Asia, Business Cycle Synchronization, Monetary Union, Markov-Switching JEL: C32, E32, F33
IntroductionThe question of monetary integration in East Asia has become a highly debated issue since the Asian 1997-98 crisis. According to many economists, the peg of their currencies to the US dollar was a source of financial fragility which led to the crisis. As a result, the leaders in the region wondered about the necessity of adopting cooperative financial and monetary policies to protect their economies against a new exchange rate crisis. 2 Some initiatives were undertaken with the adoption of reforms aiming, on the one hand at restructuring and increasing the depth of the financial systems (Asian Bond Fund and Asian Bond Market Initiative), and, on the other hand, at setting up mechanisms of protection against speculative attacks (Chiang Mai Initiative).
This paper investigates the degree and the nature of exchange rate co-movements between the Renminbi and a set of seven East Asian currencies by estimating Markov switching models with regime-dependent correlations and time-varying transition probabilities. These models have several advantages. First, exchange rate co-movements can vary across different depreciation and appreciation regimes. Second, the Renminbi can act as a transition variable that provides information regarding how the exchange rates evolve over time. After controlling for global effects and exchange market pressures, the results yield robust evidence of the Renminbi's rising role in East Asia as a significant factor in currency fluctuations. A key result is that regional currencies tend to overreact when the Renminbi depreciates and underreact when it appreciates, suggesting that East Asian economies are not willing to allow their currencies to substantially appreciate against the Chinese currency. Finally, trade transactions and competition as well as financial flows demonstrate significant explanatory power regarding currency movements against the Renminbi-particularly during episodes of smaller exchange rate fluctuations.
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