Financial Crises and Dynamic Linkages Among International Currencies

Posted: 26 Aug 2013

See all articles by Dimitrios I. Dimitriou

Dimitrios I. Dimitriou

National and Kapodistrian University of Athens; University of Ioannina - Department of Economics

Dimitris Kenourgios

National and Kapodistrian University of Athens - Department of Economics

Date Written: December 3, 2012

Abstract

This paper investigates the interdependence of US dollar exchange rates expressed in other major currencies. Focusing on different phases of the Global Financial Crisis (GFC) and the Eurozone Sovereign Debt Crisis (ESDC), we adopt a dynamic conditional correlation model into a multivariate Fractionally Integrated Asymmetric Power ARCH (FIAPARCH) framework, during the period 2004-2011. The findings indicate a decrease of exchange rates correlations during the turmoil periods, suggesting the different vulnerability of the currencies. The most stable periods of the two crises for all currencies are the early phases of the GFC, while the first phase of ESDC exhibit the most cases of decreasing correlations. Finally, the Japanese yen and Swiss franc show evidence of safe heaven currencies across several phases of the two crises. The results provide crucial implications for portfolio diversification strategies and highlight the need for some form of policy coordination among central banks.

Keywords: Global financial crisis, Euro crisis, Foreign exchange markets, FIAPARCH-DCC model, Volatility linkages

JEL Classification: C50, F31, G15

Suggested Citation

Dimitriou, Dimitrios I. and Dimitriou, Dimitrios I. and Kenourgios, Dimitris, Financial Crises and Dynamic Linkages Among International Currencies (December 3, 2012). Journal of International Financial Markets, Institutions and Money, Vol. 26, October 2013, pp. 319-332, Available at SSRN: https://ssrn.com/abstract=2315978

Dimitrios I. Dimitriou

National and Kapodistrian University of Athens ( email )

Department of Economics
Athens
Greece

University of Ioannina - Department of Economics ( email )

45110 Ioannina
Greece

Dimitris Kenourgios (Contact Author)

National and Kapodistrian University of Athens - Department of Economics ( email )

1, Sofokleous Str
Office 521
Athens, 10559
Greece
+30 210 3689449 (Phone)

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