Common Movement of the Emerging Market Currencies

Meltem Chadwick, Fatih Fazilet and Necati Tekatli

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: The aim of this study is to show that there exists a common movement among the currencies of emerging market economies that implemented the exible exchange rate regime after 2000. Also, we examine if this common movement is closely related to financial markets and some macroeconomic fundamentals commonly referred to as possible driving forces of exchange rates in economics literature. This common movement, which has been derived using a dynamic factor model, is introduced as a composite index of these currencies. Our findings suggest that the currencies of the emerging market economies have a common movement which can be explained to a great extent with the help of financial variables. On the other hand, macroeconomic fundamentals have limited explanatory power for apprehending the common dynamics of currencies. Also, both financial variables and macroeconomic fundamentals are analyzed together, within a nonlinear estimation framework, to see if the explanatory power of macroeconomic fundamentals improves. However, we could not observe a significant improvement. Specifically, the results underline the importance of bond market variables, stock market variables and risk indices in understanding the (common) dynamics of the emerging market currencies after 2000.

Keywords: exchange rate analysis; emerging market economies; dynamic factor model; financial analysis; exchange rate models; nonlinear models (search for similar items in EconPapers)
JEL-codes: C32 F31 G15 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ifn
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... g+Paperss/2012/12-07 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1207

Access Statistics for this paper

More papers in Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC.
Bibliographic data for series maintained by Sermet Pekin () and Ilker Cakar () and ().