The behavior of currencies during risk-off episodes

Reinout De Bock and Irineu de Carvalho Filho

Journal of International Money and Finance, 2015, vol. 53, issue C, 218-234

Abstract: Episodes of increased global risk aversion, also known as risk-off episodes, have become more frequent and severe since 2007. During these episodes, currency markets exhibit recurrent patterns, as the Japanese yen, Swiss franc, and U.S. dollar appreciate against other G-10 and emerging market currencies. The pattern of these moves can be explained by a combination of fundamental factors, such as the nominal interest rate, the international investment position and measures of exchange rate misalignment, and market-liquidity factors, such as bid-offer spreads and restrictions on international capital flows. We also find that currency performance in a risk-off episode has become more related to a currency's yield and relationship to broader risks in recent years.

Keywords: Risk-off episodes; Exchange rates; Safe haven currencies (search for similar items in EconPapers)
JEL-codes: F3 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (50)

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Related works:
Working Paper: The Behavior of Currencies during Risk-off Episodes (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:53:y:2015:i:c:p:218-234

DOI: 10.1016/j.jimonfin.2014.12.009

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