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The intermediating role of the Chinese renminbi in Asian currency markets: Evidence from partial wavelet coherence

Takuji Kinkyo

The North American Journal of Economics and Finance, 2022, vol. 59, issue C

Abstract: This study presents an innovative perspective on the dynamic interdependence of Asian currency markets, focusing particularly on the intermediating role of the Chinese renminbi (CNY) in introducing the co-movement between non-major Asian currencies. In this regard, the multivariate factor stochastic volatility (SV) model is estimated and continuous wavelet analysis is applied. The novelty of this study is that it employs wavelet coherence analysis to identify the localized time-varying co-movement of Asian currencies and their lead–lag relations specific to a particular scale and thus investment horizon. Furthermore, the CNY’s intermediating role in inducing co-movement between Asian currencies is examined by applying dynamic partial correlation analysis based on the multivariate factor SV model and partial wavelet coherence analysis, which evaluate the degree of the co-movement between Asian currencies after controlling for the common influence of the CNY. The results clearly indicate the prominent role of the CNY in facilitating region-wide connectedness of Asian currency markets.

Keywords: Chinese renminbi; Asian currency markets; Multivariate factor stochastic volatility model; Partial wavelet coherence (search for similar items in EconPapers)
JEL-codes: F31 F33 F36 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.najef.2021.101598

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