Multifractal Cross-correlations between foreign exchange rates and interest rate spreads

Jianfeng Li, Xinsheng Lu, Wei Jiang and Vanya S. Petrova

Physica A: Statistical Mechanics and its Applications, 2021, vol. 574, issue C

Abstract: We apply the Multifractal detrended moving average analysis (MF-DMA) and the Multifractal Cross-Correlation Analysis(MFCCA) to study the cross-correlation behaviors between foreign exchange markets and interest rate differentials. Our empirical results obtained from the cross-correlation test, qDCCA coefficient and MFCCA confirm the existence of strong multifractality cross-correlations between foreign exchange rates and interest rate differentials. Foreign exchange rate has a stronger cross-correlation with short-term interest rate differentials in Australia, Canada, Japan, the United Kingdom (UK), and European Union (EU), and with long-term interest rate differentials in China, respectively. The results of rolling window analysis suggest varying cross-correlations between the exchange rates and interest rate differentials during the sample period. In addition, the cross-correlations between exchange rates and interest spreads vary with period, country and maturity of the spreads.

Keywords: Foreign exchange rate markets; Interest rate differential; MFCCA; MF-DMA; Rolling window (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:574:y:2021:i:c:s0378437121002557

DOI: 10.1016/j.physa.2021.125983

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