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Exchange rate volatility across financial crises

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  • Coudert, Virginie
  • Couharde, Cécile
  • Mignon, Valérie

Abstract

This paper studies the impact of global financial turmoil on the exchange rate policies in emerging countries. Spillovers from advanced financial markets to currencies in emerging countries are likely to be exacerbated during crisis periods. To test this hypothesis, we assess the exchange rate policies by currencies' volatility and investigate their relationship to a global financial stress indicator, measured by the volatility on global markets. We introduce the possibility of nonlinearities by running smooth transition regressions over a sample of 21 emerging countries from January 1994 to September 2009. The results confirm that exchange rate volatility does increase more than proportionally with the global financial stress, for most countries in the sample. We also evidence regional contagion effects spreading from one emerging currency to other currencies in the neighboring area.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 11 (November)
Pages: 3010-3018

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:11:p:3010-3018

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: Financial crises Dollar pegs Contagion effects Nonlinearity;

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Citations

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Cited by:
  1. Guglielmo Maria Caporale & John Hunter & Faek Menla Ali, 2013. "On the Linkages between Stock Prices and Exchange Rates: Evidence from the Banking Crisis of 2007-2010," CESifo Working Paper Series 4189, CESifo Group Munich.
  2. Balazs Egert & Evžen Kocenda, 2013. "The Impact of Macro News and Central Bank Communication on Emerging European Forex Markets," CESifo Working Paper Series 4288, CESifo Group Munich.
  3. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2012. "Pegging emerging currencies in the face of dollar swings," Working Papers 2012-21, CEPII research center.
  4. Kuper, Gerard H. & Jacobs, Jan P.A.M. & Boonman, Tjeerd M., 2012. "The Global Financial Crisis and currency crises in Latin America," Research Report 12005-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  5. Mollah, Sabur & Zafirov, Goran & Quoreshi, AMM Shahiduzzaman, 2014. "Financial Market Contagion during the Global Financial Crisis," CITR Working Paper Series 2014/05, Center for Innovation and Technology Research, Blekinge Institute of Technology.
  6. Virginie Coudert & Valérie Mignon, 2011. "The “Forward Premium Puzzle” and the Sovereign Default Risk," Working Papers 2011-17, CEPII research center.
  7. Chkili, Walid & Nguyen, Duc Khuong, 2014. "Exchange rate movements and stock market returns in a regime-switching environment: Evidence for BRICS countries," Research in International Business and Finance, Elsevier, vol. 31(C), pages 46-56.
  8. Coudert, Virginie & Couharde, Cécile & Mignon, Valérie, 2011. "Exchange rate volatility across financial crises," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3010-3018, November.
  9. Virginie Coudert & Cyriac Guillaumin & Hélene Raymond, 2014. "Looking at the Other Side of Carry Trades: Are there any Safe Haven Currencies?," Working Papers 2014-03, CEPII research center.
  10. Sugimoto, Kimiko & Matsuki, Takashi & Yoshida, Yushi, 2013. "The global financial crisis: An analysis of the spillover effects on African stock markets," MPRA Paper 50473, University Library of Munich, Germany.
  11. Cécile Couharde & Cyriac Guillaumin, 2011. "Chocs externes et perspective d'union monétaire en Asie de l'Est : les enseignements d'un modèle VAR structurel," Post-Print halshs-00632373, HAL.

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