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Dynamic connectedness of currencies in G7 countries: A Bayesian time-varying approach

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  • Wan, Yang
  • He, Shi

Abstract

This paper focuses on the dynamic connectedness of the five currencies used in G7 since 1983 in daily frequency measured by a Bayesian time-varying approach. We find that the total connectedness of the system varies dramatically over time, and the changes are related to economic or financial events. Moreover, the US dollar is always a transmitter, and the British pound and Canadian dollar are always recipients; however, the euro and Japanese yen switch roles during the sample period. The pairwise analysis suggests that the US dollar displays positive spillovers to the other currencies, but the Euro is a powerful competitor.

Suggested Citation

  • Wan, Yang & He, Shi, 2021. "Dynamic connectedness of currencies in G7 countries: A Bayesian time-varying approach," Finance Research Letters, Elsevier, vol. 41(C).
    • Handle: RePEc:eee:finlet:v:41:y:2021:i:c:s1544612320317104
    DOI: 10.1016/j.frl.2020.101896
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    Cited by:

    1. Timo Bettendorf & Reinhold Heinlein, 2023. "Connectedness between G10 currencies: Searching for the causal structure," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3938-3959, October.
    2. Akbulut Nesrin & Ari Yakup, 2023. "TVP-VAR Frequency Connectedness Between the Foreign Exchange Rates of Non-Euro Area Member Countries," Folia Oeconomica Stetinensia, Sciendo, vol. 23(2), pages 1-23, December.
    3. Thai Hung, Ngo & Nguyen, Linh Thi My & Vinh Vo, Xuan, 2022. "Exchange rate volatility connectedness during Covid-19 outbreak: DECO-GARCH and Transfer Entropy approaches," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    4. Shahzad, Syed Jawad Hussain & Hasan, Mudassar & Caporin, Massimiliano, 2023. "Asymmetric and time-frequency based networks of currency markets," Finance Research Letters, Elsevier, vol. 55(PB).
    5. Xin Li, 2022. "Dynamic spillovers between U.S. climate policy uncertainty and global foreign exchange markets: the pass-through effect of crude oil prices," Letters in Spatial and Resource Sciences, Springer, vol. 15(3), pages 665-673, December.

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    More about this item

    Keywords

    Currency connectedness; Bayesian time-varying approach; Economic crisis; Nominal effective exchange rate; G7 countries;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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