Safe‐Haven Currency: An Empirical Identification
24 Pages Posted: 11 Aug 2017
Date Written: September 2017
This paper attempts to empirically identify strong safe havens among six currencies: the Swiss franc, Japanese yen, British pound, euro, Canadian dollar and Norwegian krone. Using Markov regime‐switching vector autoregressive models, we test whether the currencies are negatively related to risky assets and whether the negative relation is stronger in times of crisis than in times of growth. We find that (1) the Swiss franc and Japanese yen qualify as strong safe havens, and (2) the other currencies qualify as “equity‐like” or risky currencies.
Keywords: cross‐asset relation, currency hedging, Markov switching VAR, safe haven currency
JEL Classification: C32, F31, G15
Suggested Citation: Suggested Citation