Time-Varying Dependency and Structural Changes in Currency Markets

Chia-Hsun Hsieh and Shian-Chang Huang

Emerging Markets Finance and Trade, 2012, vol. 48, issue 2, 94-127

Abstract: This study employs Patton's (2006) conditional copula framework to model dynamic conditional joint distribution with currency data for Taiwan and its trading counterparties. Empirical findings suggest that the exchange rate of Taiwan tends to display high tail dependence with those of Asian countries during currency depreciations. Because financial events during the sample period may be the source of structural changes for dependence structure, this study applies Bai and Perron's (1998, 2003) approach to detect the internal structural breaks. Empirical results reveal significant structural changes in the persistence of dependence, especially during the financial crisis of 2008.

Keywords: conditional copula; currency market; structural break; time series model; time-varying dependency (search for similar items in EconPapers)
Date: 2012
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