How do exchange rates co-move? A study on the currencies of five inflation-targeting countries

Xiao-Ming Li

Journal of Banking & Finance, 2011, vol. 35, issue 2, 418-429

Abstract: This paper does three things. First, it explores the type of asymmetry in exchange rate correlation for five inflation-targeting countries. We show their currencies co-move more closely with the currencies of some influential foreign countries during joint appreciations than joint depreciations against a world currency. Second, it establishes empirically the linkage between interest rate differentials and exchange rate correlation. We find evidence that both widening and narrowing interest rate differentials will reduce the correlation. Third, it proposes a new version of the asymmetric dynamic conditional correlation model. The model proves to be capable of providing great insight into the two issues investigated.

Keywords: Exchange; rate; correlation; Interest; rate; differentials; ADCCE; model; Inflation-targeting; countries (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378-4266(10)00328-6
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:2:p:418-429

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().