The Behavior of Currencies during Risk-off Episodes / Reinout De Bock, Irineu de Carvalho Filho.

Format:

Book

Government document

Author/Creator:

De Bock, Reinout.

Contributor:

Carvalho Filho, Irineu de.

International Monetary Fund. Monetary and Capital Markets Department.

International Monetary Fund. Research Department.

Series:

IMF Working Papers; Working Paper ; No. 2013/008

IMF Working Papers

Language:

English

Subjects (All):

Foreign exchange--Econometric models.

Foreign exchange.

Foreign exchange rates.

Foreign exchange rates--Econometric models.

Physical Description:

1 online resource (35 p.)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2013.

Language Note:

English

Summary:

Episodes of increased global risk aversion, also known as risk-off episodes, have become more frequent and severe since 2007. During these episodes, currency markets exhibit recurrent patterns, as the Japanese yen, Swiss franc, and U.S. dollar appreciate against other G-10 and emerging market currencies. The pattern of these moves can be explained by a combination of fundamental factors, such as the nominal interest rate, the international investment position and measures of exchange rate misalignment, and market-liquidity factors, such as bid-offer spreads and restrictions on international capital flows. We also find that currency performance in a risk-off episode has become more related to a currency?s yield and relationship to broader risks in recent years.

Contents:

Cover; Abstract; Contents; I. Introduction; Figures; 1. FX Spot Returns at Different Horizons, Average of 8 Risk-off Episodes; II. Risk-off Episodes; A. Identifying Risk-off Episodes; 2. VIX and Risk-off Episodes; Tables; 1. Initial Dates of Risk-off Episodes; B. Why Have Risk-off Episodes Become More Frequent?; 3. Increased Financial Integration and Correlations; III. What Happens to Exchange Rates During Risk-off Episodes?; A. Are Risk-off Episodes Alike?; 2. Correlation of Spot Returns Across Episodes; B. Evidence From VARs

3. Impulse Response Functions, Effect of Risk-off Episodes on Exchange Rates Versus the U.S. DollarIV. Explaining the Cross-sectional Variation; A. Policy Interest Rates; B. External Sector; C. Exchange Rate Misalignment; D. Currency Behavior Prior to the Risk-off Episode; E. Cost of Buying an Option and Tail Risk Insurance; F. Liquidity Conditions; G. Simple Regressions; 4. Bivariate Regressions of Depreciation Since the Beginning of the Risk-off Episode; H. Multivariate Analysis; V. Have Currency Risk Factors Changed Since 2007?

5. Multivariate Regressions of Depreciation Since the Beginning of Risk-off Episodes6. Risk-off Depreciations, Before and After the Global Financial Crisis; 4. Median of EM Currency Return Betas with VIX and AUDJPY; 5. Currency Return Betas for Select EM; VI. Conclusion and Policy Implications; 6. Impulse Response Functions, Effect of Risk-off Episodes on Exchange Rates Against the U.S. Dollar; Appendix; Volatility and Correlations of Key Variables; Exchange Rates Against the U.S. Dollar and Risk-off Episodes; References

Notes:

"Monetary and Capital Markets Department, Research Department."

"January 2013."

Includes bibliographical references.

Description based on print version record.

ISBN:

9781475538175

1475538170

9781616353162

1616353163

9781299264472

1299264476

9781475536102

1475536100