Wavelet Analysis of the Euro and its Co-Movement with Four Exchange Rates

Meifen Chu ()
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Meifen Chu: Kyushu University, Japan

Eurasian Journal of Social Sciences, 2020, vol. 8, issue 3, 123-133

Abstract: The objective of this study is to examine the characteristics of the Euro exchange rate and its comovement with four main currencies (the AUD, POUND, YEN, and RMB). After the Euro was adopted as an official currency in EU area, it grew rapidly and became the second most-traded currency in the world. The increasing importance of the Euro drew much attention from researchers and policymakers. This paper employs the wavelet analysis, which has become popular and recently is applied in various fields, such as medical science, radio science and social science. First, this paper observes five currency exchange series: the EURO, AUD, POUND, YEN and RMB. Next, using wavelet analysis, it examines the characteristics of each series. Then, a wavelet coherence analysis is used to examine the interdependence between the EURO and the other four currencies. The results indicate that the Euro displays a greater interdependence with the AUD and POUND, while it has lesser correlations with the YEN and RMB. This implies the Euro co-moves with the American and European exchange markets while it is less related with the Asian counterpart. It is interesting to note that the Yen led the Euro during the global financial crisis. Further, the Euro has interdependence with the four exchange rates at shorter periodicities during the crisis periods and is correlated with the four at long periodicities in the long run.

Keywords: Euro Exchange Rate; Nonlinear Time Series Analysis; Co-movement; Interdependence; Wavelet Analysis (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ejn:ejssjr:v:8:y:2020:i:3:p:123-133

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