Reassessing the Link between the Japanese Yen and Emerging Asian Currencies

Bong-Han Kim, Hyeongwoo Kim () and Hong-Ghi Min

No auwp2011-05, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: We reassess the degree of exchange rate co-movement between the Japanese yen and 5 emerging Asian currencies relative to the US dollar in the 2000s. It is often claimed that these currencies have been closely tied with the Japanese yen possibly due to active interactions of Japan and emerging Asian economies. We question the validity of such claims, reporting substantially lower, even negative, dynamic conditional correlations between these currencies and the yen-dollar exchange rate in the second half of the 2000s. Our novel multivariate GARCH framework identifies the liquidity deterioration, measured by the TED spread, and the elevated risk aversion, measured by the sovereign CDS premium, in international capital markets as the two major driving forces of such decoupling phenomena.

Keywords: Yen-Dollar Exchange Rate; Emerging Asian Currencies; Dynamic Conditional Correlation; DCCX-MGARCH (search for similar items in EconPapers)
JEL-codes: C32 F31 G15 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-ifn
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Journal Article: Reassessing the link between the Japanese yen and emerging Asian currencies (2013)
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