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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.

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  • 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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    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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