Reassessing the link between the Japanese yen and emerging Asian currencies

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We reassess the degree of exchange rate co-movement between the Japanese yen and five emerging Asian currencies relative to the US dollar in the 2000s. It is often claimed that these currencies have been closely tied with the Japanese yen possibly due to active interactions of japan and emerging Asian economies. We question the validity of such claims, reporting substantially lower, even negative, dynamic conditional correlations between these currencies and the yen-dollar exchange rate in the second half of the 2000s. Our novel multivariate GARCH framework identifies the liquidity deterioration, measured by the TED spread, and the elevated risk aversion, measured by the sovereign CDS premium, in international capital markets as the two major driving forces of such decoupling phenomena. (C) 2012 Elsevier Ltd. All rights reserved.
Publisher
ELSEVIER SCI LTD
Issue Date
2013-03
Language
English
Article Type
Article
Keywords

EXCHANGE-RATE; FINANCIAL CONTAGION; EAST-ASIA; COINTEGRATION; MARKETS; INTERDEPENDENCE; MODELS; CRISIS; BLOC

Citation

JOURNAL OF INTERNATIONAL MONEY AND FINANCE, v.33, pp.306 - 326

ISSN
0261-5606
DOI
10.1016/j.jimonfin.2012.11.021
URI
http://hdl.handle.net/10203/173880
Appears in Collection
RIMS Journal Papers
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