The behavior of currencies during risk-off episodes

Reinout De Bock and Irineu de Carvalho Filho

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

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Year of publication:	2013
Authors:	De Bock, Reinout ; Carvalho Filho, Irineu de
Publisher:	Washington, DC : IMF
Subject:	Währungsspekulation \| Currency speculation \| Währungsrisiko \| Exchange rate risk \| Zinsrisiko \| Interest rate risk \| Steueroase \| Tax haven

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Extent:	Online-Ressource (33 S.) graph. Darst.
Series:	IMF working papers. - Washington, DC : IMF, ZDB-ID 2108494-4. - Vol. 13/8
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature
Language:	English
Notes:	"Monetary and Capital Markets Department, Research Department "January 2013 Includes bibliographical references Systemvoraussetzungen: Acrobat Reader 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 Electronic reproduction; Available via World Wide Web
ISBN:	978-1-55775-530-8
Source:	ECONIS - Online Catalogue of the ZBW

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