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Systemic risk contagion in FX market: A frequency connectedness and network analysis

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  • Onur Polat

Abstract

In this study, we analyse systemic risk contagion between a set of most actively traded currencies (EURO, JPY, GBP, AUD, CAD and CHF) by application of VAR based frequency connectedness proposed by Baruník and Křehlík. By using this novel approach, we gauge foreign exchange (FX) market connectedness in 200‐day frequency band using spectral representation of variance decompositions of VAR and identify directional spillovers between the most actively traded foreign exchange rates. Dynamics of the overall spillover index reveals that the index capture well‐known financial stress incidents properly. Finally, network topology of directional spillovers between currency pairs is provided for visulalization interconnectedness between them.

Suggested Citation

  • Onur Polat, 2019. "Systemic risk contagion in FX market: A frequency connectedness and network analysis," Bulletin of Economic Research, Wiley Blackwell, vol. 71(4), pages 585-598, October.
    • Handle: RePEc:bla:buecrs:v:71:y:2019:i:4:p:585-598
    DOI: 10.1111/boer.12197
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    Cited by:

    1. Qi, Haozhi & Wu, Tiantian & Chen, Hao & Lu, Xiuling, 2023. "Time-frequency connectedness and cross-quantile dependence between carbon emission trading and commodity markets: Evidence from China," Resources Policy, Elsevier, vol. 82(C).
    2. Choi, Sun-Yong, 2022. "Credit risk interdependence in global financial markets: Evidence from three regions using multiple and partial wavelet approaches," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    3. Pramod C. Mane & Nagarajan Krishnamurthy & Kapil Ahuja, 2023. "Resource availability in the social cloud: An economics perspective," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 541-566, April.
    4. Fernanda Fuentes & Rodrigo Herrera, 2020. "Dynamics of Connectedness in Clean Energy Stocks," Energies, MDPI, vol. 13(14), pages 1-19, July.

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