Dynamic Currency Linkages and Their Determinants: An Empirical Study for East Asian Economic Community Region

Piyush Pandey and Sanjay Sehgal

Emerging Markets Finance and Trade, 2018, vol. 54, issue 7, 1538-1556

Abstract: In this article, Copula GARCH models have been employed to study the inter-temporal process of currency market co-movements between ASEAN+6 countries (referred to in this study as East Asian Economic Community) and ASEAN+6 currency market index. Empirical results show that the sample countries of the region exhibit varying levels of currency co-movements with the Asian benchmark. Markov regime switching results show that many of the countries which had high dependences with the regional currency index as was found in copula estimations had also overlapping currency market cycles. Using Principal Component Analysis, we find that three statistical factors explain exchange rate co-movements which came out to be trade linkages, economic risk, and currency market openness in our dynamic panel data estimation.

Date: 2018
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DOI: 10.1080/1540496X.2017.1380621

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