Exchange Rate Synchronization for a set of Currencies from Different Monetary Areas

António Portugal Duarte and Nuno Baetas da Silva
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Nuno Baetas da Silva: Ph.D. Student at Faculty of Economics, University of Coimbra

No 2022-03, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: The degree of co-movement between currencies remains an important subject for international trade and monetary integration across countries. However, the economic literature has given limited answers about the directional relationships among currencies, and whether they have a leader or a driver. Using the Hodrick-Prescott filter and the wavelet methodology, this paper analyzes exchange rate synchronization for a set of twelve currencies belonging to different monetary areas covering the period between January 1980 and July 2020. The empirical results reveal that: i) the U.S. dollar still plays an essential role as a foreign exchange anchor; ii) the euro shows an out-of-phase relationship with the vast majority of currencies, including with the other European currencies; iii) the British pound seems to have departed significantly from the European single currency; iv) the Brazilian real leads the Chinese yuan for most of the sample, and both currencies record great dissimilarities with the other currencies; v) in the absence of short-term foreign exchange market frictions, average bilateral distances between currencies are smaller, and vi) during the international financial crisis, exchange rates became more synchronized

Keywords: Exchange rate; co-movements; Hodrick-Prescott filter; wavelets; synchronization. (search for similar items in EconPapers)
JEL-codes: C51 E31 F41 F42 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2022-03
New Economics Papers: this item is included in nep-cba, nep-his, nep-mon and nep-opm
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Citations: View citations in EconPapers (1)

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Journal Article: Exchange Rate Synchronization for a Set of Currencies from Different Monetary Areas (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:gmf:papers:2022-03

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