Wavelet coherence analysis and exchange rate movements

Sevda Kuşkaya (), Nurhan Toğuç () and Faik Bilgili
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Nurhan Toğuç: Esenyurt University

Quality & Quantity: International Journal of Methodology, 2022, vol. 56, issue 6, No 34, 4675-4692

Abstract: Abstract In this study, we examine the volatility of exchange rates to exogenous monetary shocks by dividing the volatility into subsections of “interdependence” and “contagion” during FED’s easing for the period from 2010:11 to 2018:7. Conventional methods are neither suitable to differentiate those components nor to identify the co-movements concerning time and frequency analysis, which are critical for timing in asset management and policymaking. Therefore, wavelet analysis is introduced to differentiate such components. The contribution of the study is threefold: First, this study compensates for the lack of research capturing the volatility structure of exchange rates during exogenous shocks. Second, we show both the long-term and short-term impact with associated frequency ranges. Third, we show that identifying the impact of a shock in different components and frequency ranges can provide valuable insights for the timing of market preventions and asset allocation.

Keywords: Wavelet coherence; Interdependence; Contagion; Exchange rates; International asset management (search for similar items in EconPapers)
JEL-codes: F31 G15 G41 H12 M21 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11135-022-01327-7

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