Economic and Political Effects on Currency Clustering Dynamics

Quantitative Finance, 19(5):705-716, 2019

17 Pages Posted: 20 Sep 2017 Last revised: 12 Aug 2019

See all articles by Marcel Kremer

Marcel Kremer

University of Duisburg-Essen

Alexander P. Becker

Boston University - Department of Physics

Irena Vodenska

Boston University Metropolitan College

H. Eugene Stanley

Boston University - Center for Polymer Studies

Rudi Schäfer

University of Duisburg-Essen

Date Written: October 15, 2018

Abstract

We propose a new measure named the symbolic performance to better understand the structure of foreign exchange markets. Instead of considering currency pairs, we isolate a quantity that describes each currency's position in the market, independent of a base currency. We apply the k-means clustering algorithm to analyze how the roles of currencies change over time, from reference status or minimal appreciations and depreciations with respect to other currencies to large appreciations and depreciations. We show how different central bank interventions and economic and political developments, such as the cap of the Swiss franc to the euro enforced by the Swiss National Bank or the Brexit vote, affect the position of a currency in the global foreign exchange network.

Keywords: Symbolic performance; Currency clustering; Currency dynamics; Central bank intervention

JEL Classification: E52; E58; G15

Suggested Citation

Kremer, Marcel and Becker, Alexander and Vodenska, Irena and Stanley, H. Eugene and Schäfer, Rudi, Economic and Political Effects on Currency Clustering Dynamics (October 15, 2018). Quantitative Finance, 19(5):705-716, 2019. Available at SSRN: https://ssrn.com/abstract=3038865 or http://dx.doi.org/10.2139/ssrn.3038865

Marcel Kremer (Contact Author)

University of Duisburg-Essen ( email )

Universitaetsstrasse 12
Essen, 45141
Germany

HOME PAGE: http://www.lef.wiwi.uni-due.de/en/team/marcel-kremer

Alexander Becker

Boston University - Department of Physics ( email )

590 Commonwealth Avenue
Boston, MA 02215
United States

Irena Vodenska

Boston University Metropolitan College ( email )

808 Commonwealth Avenue
Boston, MA 02115
United States

H. Eugene Stanley

Boston University - Center for Polymer Studies ( email )

Boston, MA 02215
United States

Rudi Schäfer

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

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