Spillover shifts in the FX market: Implication for the behavior of a safe haven currency

Young Min Kim and Seojin Lee

The North American Journal of Economics and Finance, 2023, vol. 65, issue C

Abstract: This paper explores the behavior of safe haven currencies by analyzing shock transmission among major currencies. To capture state-dependent directional spillovers, we incorporate Markov regime-switching parameters into the spillover model and estimate them using a Bayesian MCMC algorithm. By considering weekly data from September 2000 to March 2020, we find that the Japanese yen and the Swiss franc, both of which yield relatively high excess returns in times of crisis, exhibit larger reductions of shock transmission and reception during periods of high-volatility than during periods of low-volatility. This implies that the safe haven currencies insulate themselves from shocks from other currencies by reducing interdependence across the FX market in crisis.

Keywords: Safe haven currencies; Markov switching; Risk transmission; Spillovers (search for similar items in EconPapers)
JEL-codes: C1 F2 F3 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:65:y:2023:i:c:s1062940823000086

DOI: 10.1016/j.najef.2023.101885

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