Dynamic Spillover Effects of Macroeconomic Risks on Foreign Exchange Markets in Emerging Countries

This study investigates the dynamic spillover effects of the Citi short- and long-term macro risk indexes on foreign exchange markets in the fragile five countries. First, we provide an evidence for the co-movement behavior of foreign exchange markets in emerging countries. Second, we estimate the DCC-GARCH models for each country and find statistically significant positive dynamic conditional correlations between the log-returns of nominal exchange rates and the log-returns of macroeconomic risk indexes for the period of 3rd January, 2012 to 30th December, 2019. The results suggest that the exchange rates of emerging countries depreciate when the macroeconomic risks increase