Latin American Exchange Rate Dependencies: A Regular Vine Copula Approach

15 Pages Posted: 14 May 2015

See all articles by Rubén Albeiro Loaiza Maya

Rubén Albeiro Loaiza Maya

The University of Melbourne, Melbourne Business School

Jose E Gomez-Gonzalez

Banco de la Republica

Luis Fernando Melo Velandia

Central Bank of Colombia

Date Written: July 2015

Abstract

This study implements a regular vine copula methodology to evaluate the level of contagion among the exchange rates of six Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru) from June 2005 to April 2012. We measure contagion in terms of tail dependence coefficients, following Fratzscher’s (1999) definition of contagion as interdependence. Our results indicate that these countries are divided into two blocks. The first block consists of Brazil, Colombia, Chile, and Mexico, whose exchange rates exhibit the largest dependence coefficients, and the second block consists of Argentina and Peru, whose exchange rate dependence coefficients with other Latin American countries are low. We also found that most of the Latin American exchange rate pairs exhibit asymmetric behaviors characterized by nonsignificant upper tail dependence and significant lower tail dependence. These results imply that there exists contagion in Latin American exchange rates in periods of large appreciations, whereas there is no evidence of contagion during periods of currency depreciation. This empirical regularity may reflect the “fear of appreciation” in emerging economies identified by Levy-Yeyati, Sturzenegger, and Gluzmann (2013).

Suggested Citation

Loaiza Maya, Ruben Albeiro and Gomez-Gonzalez, Jose Eduardo and Velandia, Luis Fernando Melo, Latin American Exchange Rate Dependencies: A Regular Vine Copula Approach (July 2015). Contemporary Economic Policy, Vol. 33, Issue 3, pp. 535-549, 2015, Available at SSRN: https://ssrn.com/abstract=2605221 or http://dx.doi.org/10.1111/coep.12091

Ruben Albeiro Loaiza Maya (Contact Author)

The University of Melbourne, Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053
Australia

Jose Eduardo Gomez-Gonzalez

Banco de la Republica ( email )

Carrera 7 #14-78
Bogota
Colombia

Luis Fernando Melo Velandia

Central Bank of Colombia ( email )

Carrera 7 No. 14-78 Piso 11
Bogotá
Colombia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
263
PlumX Metrics