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Dynamic connectedness of global currencies: a conditional Granger-causality approach

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  • Tan Le

    () (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Franck Martin

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Duc Nguyen

    (IPAG - IPAG Business School - Ipag)

Abstract

Conditional granger causality framework in Barnett and Seth (2014) is employed to measure the connectedness among the most globally traded currencies. The connectedness exhibits dynamics through time on both breadth and depth dimensions at three levels: node-wise, group-wise and system-wise. Overall, rolling connectedness series could capture major systemic events like Lehman Broth-ers' collapse and the get-through of Outright Monetary Transactions in Europe in September 2012. The rolling total breath connectedness series spike during high-risk episodes, becomes more stable in lower risk environment and is positively correlated with volatility index and Ted spread, thus, can be considered as a systemic risk indicator in light of Billio et al. (2012). Global currencies tend structure into communities based on connection strength and density. While more links are found related to currencies from emerging markets, G11 currencies are net spreaders of foreign exchange rate returns. Finally, hard currencies including Canadian dollar, Norwegian Krone and Japanese Yen frequently present among the top most connected, though the centrality positions vary over time.

Suggested Citation

  • Tan Le & Franck Martin & Duc Nguyen, 2018. "Dynamic connectedness of global currencies: a conditional Granger-causality approach," Working Papers hal-01806733, HAL.
  • Handle: RePEc:hal:wpaper:hal-01806733
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01806733
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    References listed on IDEAS

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    Keywords

    conditional granger causality; exchange rates; connectedness; systemic risk;

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