Dynamical Hierarchical Tree in Currency Markets
Juan Gabriel Brida
Free University of Bolzano
Wiston Adrián Risso
University of Siena - Department of Economics
David Matesanz Gómez
Universidad de Oviedo - Economfa Aplicada
February 1, 2007
Expert Systems with Applications, Vol. 36, pp. 7721-7728, 2009
In this paper we introduce a new method to describe dynamical patterns of the real exchange rate movements time series and to analyze contagion in currency crisis. The method combines the tools of Symbolic Time Series Analysis with the nearest neighbor single linkage clustering algorithm. Data symbolization allows to obtain a metric distance between two different time series that is used to construct an ultrametric distance. By analyzing the data of various countries, we derive a hierarchical organization, constructing minimal-spanning and hierarchical trees. From these trees we detect different clusters of countries according to their proximity. We show that the derived clusters corresponds with the geographical location of the countries. The obtained classification of countries can be used to study the contagion phenomena in currency crisis.
Number of Pages in PDF File: 20
Keywords: Symbolic Time Series Analysis, real exchange rate, hierarchical tree
JEL Classification: C10, C14, F31Accepted Paper Series
Date posted: February 20, 2007 ; Last revised: June 19, 2011
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