Safe‐Haven Currency: An Empirical Identification

24 Pages Posted: 11 Aug 2017

Date Written: September 2017

Abstract

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

Lee, Kang‐Soek, Safe‐Haven Currency: An Empirical Identification (September 2017). Review of International Economics, Vol. 25, Issue 4, pp. 924-947, 2017. Available at SSRN: https://ssrn.com/abstract=3016712 or http://dx.doi.org/10.1111/roie.12289

Kang‐Soek Lee (Contact Author)

Banque Centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

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