Exchange Rate Interdependence in ASEAN Markets: A Wavelet Analysis

Qureshi, Saba; Aftab, Muhammad

doi:10.1177/0972150920919371

Cited by 12 publications

(6 citation statements)

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“…Accordingly, the interconnectedness of financial markets has led researchers to analyze the movement of FX markets. The exchange rate volatility holds a spillover effect during crisis periods by increasing financial and economic interdependence between nation-states (Qureshi and Aftab, 2020). Exchange rate stability together with the efficiency of capital markets generates confidence in periods of economic stability while limiting government intervention during crisis periods.…”

Section: Introductionmentioning

confidence: 99%

Consequences of Russian invasion on Ukraine: evidence from foreign exchange rates

Aliu

Hašková

Bajra

2022

JRF

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PurposeThe stability of exchange rates facilitates international trade, diminishes portfolio risk, and ensures that economic policies are effective. The war in Ukraine is showing that the European financial system is still fragile to external shocks. This paper examines the consequences of the Russian invasion of Ukraine on five Euro exchange rates. The final goal is to empirically test whether the ruble caused the euro to depreciate with the Russian invasion of Ukraine.Design/methodology/approachThe exchange rates analyzed are Euro/Russian Ruble, Euro/US Dollar, Euro/Japanese Yen, Euro/British Pound, and Euro/Chinese Yuan. The data collected are daily and cover the period from November 1, 2021, to May 1, 2022. In this context, the changes in the FX rates reflect two months of the ongoing war in Ukraine. The FX rates used in the study contain 137 observations indicating five months of daily series.FindingsThe results from impulse response function, variance decomposition, SVAR, and VECM indicate that the EUR/RUB significantly influenced the Euro devaluation. On the other side, the FX rates used in our work altogether hold long-run cointegration. The situation is different in the short run, where only EUR/RUB, EUR/USD, and EUR/CNY possess significant relations with other parities.Originality/valueThe Ruble is not among hard currencies, but its position strengthened during this period due to the importance of Russian gas to the Eurozone. The results indicate that even weak currencies can be influential depending on the geopolitical and economic situation. To this end, diversification remains a valid concept not only in portfolio construction but also for the preservation of the national economy.

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Section: Introductionmentioning

confidence: 99%

Consequences of Russian invasion on Ukraine: evidence from foreign exchange rates

Aliu

Hašková

Bajra

2022

JRF

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“…Accordingly, recent studies on coordination of exchange rate markets have relied on models that can extract better high frequency signals about the exchange rate to deal with its apparent noisy behaviour to provide better understanding [1,2,5,[14][15][16]. is is aimed at analysing exchange rate markets from the time-frequency domain perspective instead of the traditional time-domain viewpoint.…”

Section: Introductionmentioning

confidence: 99%

A New EEMD‐Effective Transfer Entropy‐Based Methodology for Exchange Rate Market Information Transmission in Southern Africa Development Community

et al. 2021

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The desire to form monetary unions among regional blocs in Africa has necessitated the need to assess the degree of financial systems interdependencies in Africa economic blocs for their suitability to have harmonised economic policies of eventual monetary unions. In this regard, SADC has pursued policies to harmonise and integrate its financial system as a precursor to its intended monetary union. However, the ensuing risk among exchange rates of economies in SADC is presumed to rise during severe uncertainties. This study examines the degree of asymmetry and nonlinear directional causality between exchange rates in SADC in the frequency domain. We employ both the ensemble empirical mode decomposition (EEMD) and the Rényi effective transfer entropy techniques to investigate the multiscale information that might be disregarded and further quantify the directional flow of information. Analysis of the study is presented for four frequency-domains: high-, medium-, and low frequencies, representing short-, medium-, and long-terms, respectively, in addition to the residue (fundamental feature). We find a mixture of asymmetric and nonlinear bidirectional and unidirectional causality between exchange rates in SADC for the sampled period. The study reveals a significant positive information flow in the high frequency, but negative flow in the medium and low frequencies. In addition, we gauge a bidirectional significant negative information flow within all the 15 economies for the residue. This suggests a higher risk of uncertainties in exchange rates of SADC. Our findings for low probability events at multiscales have implications for the direction of the future of the SADC monetary union. This calls for further sustained policy harmonisation in the region.

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“…However, this connectivity poses challenges to financial stability and exposure to international contagion, particularly during times of turmoil (Dewandaru et al. , 2017; Qureshi and Aftab, 2020).…”

Section: Introductionmentioning

confidence: 99%

“…This has brought great benefits in terms of portfolio diversification, risksharing and efficiency in resource allocation. However, this connectivity poses challenges to financial stability and exposure to international contagion, particularly during times of turmoil (Dewandaru et al, 2017;Qureshi and Aftab, 2020).…”

Section: Introductionmentioning

confidence: 99%

“…The existing literature is inconclusive regarding contagion and the mechanism by which uncertainty transfers from one market to another (Pritsker, 2001;Qureshi and Aftab, 2020). Some studies suggest that uncertainty transfers via episodes of contagion, such that the correlations between interconnected economies increase during times of crisis (Froot et al, 2001).…”

Section: Introductionmentioning

confidence: 99%

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The interdependence of foreign exchange vulnerability in emerging markets

Qureshi

Aftab

Hegerty

2022

APJBA

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PurposeThe foreign exchange market plays a crucial role in defining the overall health of an economy. In these times of globalization and (in some ways) deglobalization, these markets are highly vulnerable to external shocks. In this line of research, this study investigates exchange-market vulnerability among the BRICS economies by considering the co-movements among variables and contagion among markets.Design/methodology/approachThis study uses DCC-IGARCH and Wavelet approaches to examine interdependence and contagion among the foreign exchange markets of the BRICS countries. The prior approach gives exposure to correlations over time, while the latter approach is suitable to provide insight regarding correlations over different frequency and time domains.FindingsThese results show evidence of meaningful co-movements in the vulnerability of the BRICS economies' foreign exchange markets during periods of market instability. The authors observe that interdependence significantly increased after 2008 and is prominent in the short run, particularly up to the scale of 1.5 years. In addition, there is evidence of persistent integration across the short and medium run. Furthermore, the findings indicate recurrent patterns of co-movements and the presence of contagion.Originality/valueGiven the high degree of economic integration among the BRICS economies, there is relatively little literature on how each member country's foreign exchange vulnerability can affect others. This research fills this gap, by applying appropriate econometric techniques and using a newly created measure of exchange market vulnerability that is unit consistent—such that it combines observed change in exchange rates with the change that is prevented through central bank intervention in a common unit, rather than by combining percentages with dollar-denominated values. This research provides important implications for investors and policymakers.

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Exchange Rate Interdependence in ASEAN Markets: A Wavelet Analysis

Cited by 12 publications

References 73 publications

Consequences of Russian invasion on Ukraine: evidence from foreign exchange rates

Consequences of Russian invasion on Ukraine: evidence from foreign exchange rates

A New EEMD‐Effective Transfer Entropy‐Based Methodology for Exchange Rate Market Information Transmission in Southern Africa Development Community

The interdependence of foreign exchange vulnerability in emerging markets

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