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Financial crises and dynamic linkages among international currencies

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  • Dimitriou, Dimitrios
  • Kenourgios, Dimitris

Abstract

This paper investigates the interdependence of US dollar exchange rates expressed in other major currencies. Focusing on different phases of the Global financial crisis (GFC) and the Eurozone Sovereign Debt Crisis (ESDC), we adopt a dynamic conditional correlation model into a multivariate Fractionally Integrated Asymmetric Power ARCH (FIAPARCH) framework, during the period 2004–2011. The findings indicate a decrease of exchange rates correlations during the turmoil periods, suggesting the different vulnerability of the currencies. The most stable periods of the two crises for all currencies are the early phases of the GFC, while the first phase of ESDC exhibit the most cases of decreasing correlations. Finally, the Japanese yen and Swiss franc show evidence of safe heaven currencies across several phases of the two crises. The results provide crucial implications for portfolio diversification strategies and highlight the need for some form of policy coordination among central banks.

Suggested Citation

  • Dimitriou, Dimitrios & Kenourgios, Dimitris, 2013. "Financial crises and dynamic linkages among international currencies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 319-332.
    • Handle: RePEc:eee:intfin:v:26:y:2013:i:c:p:319-332
    DOI: 10.1016/j.intfin.2013.07.008
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    More about this item

    Keywords

    Global financial crisis; Euro crisis; Foreign exchange markets; FIAPARCH-DCC model; Volatility linkages;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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