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

Author

Listed:
  • António Manuel Portugal Duarte

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

  • Nuno José Henriques 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 interna- tional 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 lter and the wavelet methodology, this paper analyzes exchange rate synchronization for a set of twelve currencies belonging to dierent 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 signicantly 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 nancial crisis, exchange rates became more synchro- nized

Suggested Citation

  • António Manuel Portugal Duarte & Nuno José Henriques 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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    More about this item

    Keywords

    Exchange rate; co-movements; Hodrick-Prescott lter; 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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