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Wavelet coherence analysis and exchange rate movements

Author

Listed:
  • Sevda Kuşkaya

    (Erciyes University)

  • Nurhan Toğuç

    (Esenyurt University)

  • Faik Bilgili

    (Erciyes University)

Abstract

In this study, we examine the volatility of exchange rates to exogenous monetary shocks by dividing the volatility into subsections of “interdependence” and “contagion” during FED’s easing for the period from 2010:11 to 2018:7. Conventional methods are neither suitable to differentiate those components nor to identify the co-movements concerning time and frequency analysis, which are critical for timing in asset management and policymaking. Therefore, wavelet analysis is introduced to differentiate such components. The contribution of the study is threefold: First, this study compensates for the lack of research capturing the volatility structure of exchange rates during exogenous shocks. Second, we show both the long-term and short-term impact with associated frequency ranges. Third, we show that identifying the impact of a shock in different components and frequency ranges can provide valuable insights for the timing of market preventions and asset allocation.

Suggested Citation

  • Sevda Kuşkaya & Nurhan Toğuç & Faik Bilgili, 2022. "Wavelet coherence analysis and exchange rate movements," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(6), pages 4675-4692, December.
    • Handle: RePEc:spr:qualqt:v:56:y:2022:i:6:d:10.1007_s11135-022-01327-7
    DOI: 10.1007/s11135-022-01327-7
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    Cited by:

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    2. Fredy Gamboa-Estrada, 2023. "The Role of Foreign Investors and Local Agents in the Derivatives Market and their Impact on the Exchange Rate in Colombia: A Wavelet Analysis," IHEID Working Papers 12-2023, Economics Section, The Graduate Institute of International Studies.

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    More about this item

    Keywords

    Wavelet coherence; Interdependence; Contagion; Exchange rates; International asset management;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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