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Exchange Rate Synchronization for a set of Currencies from Different Monetary Areas

Author

Listed:
  • António Portugal Duarte

    (University of Coimbra, Centre for Business and Economics Research, CeBER and Faculty of Economics)

  • Nuno Baetas da Silva

    (Ph.D. Student at Faculty of Economics, University of Coimbra)

Abstract

The degree of co-movement between currencies remains an important subject for international trade and monetary integration across countries. However, the economic literature has given limited answers about the directional relationships among currencies, and whether they have a leader or a driver. Using the Hodrick-Prescott filter and the wavelet methodology, this paper analyzes exchange rate synchronization for a set of twelve currencies belonging to different monetary areas covering the period between January 1980 and July 2020. The empirical results reveal that: i) the U.S. dollar still plays an essential role as a foreign exchange anchor; ii) the euro shows an out-of-phase relationship with the vast majority of currencies, including with the other European currencies; iii) the British pound seems to have departed significantly from the European single currency; iv) the Brazilian real leads the Chinese yuan for most of the sample, and both currencies record great dissimilarities with the other currencies; v) in the absence of short-term foreign exchange market frictions, average bilateral distances between currencies are smaller, and vi) during the international financial crisis, exchange rates became more synchronized

Suggested Citation

  • António Portugal Duarte & Nuno Baetas da Silva, 2022. "Exchange Rate Synchronization for a set of Currencies from Different Monetary Areas," CeBER Working Papers 2022-03, Centre for Business and Economics Research (CeBER), University of Coimbra.
  • Handle: RePEc:gmf:papers:2022-03
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate; co-movements; Hodrick-Prescott filter; wavelets; synchronization.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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