Dependence Structure in the Foreign Exchange Market with Conditional Copulas

This paper provides a framework for modeling the dependence structure in the foreign exchange market. We first employ generalized autoregressive heteroskedasticity models to estimate the marginal distributions of the exchange rates. The conditional copula is then applied to the marginal distributions to capture the dependence between the exchange rates. The empirical analysis includes daily official and informal exchange rates in Argentina. We compare the dependence before and during the COVID-19 pandemic, documenting an interdependence between official and informal exchange rates. Our findings show a time-varying correlation between exchange rates with contrasting dependence structures before and after the pandemic