Öz
This study examines currency connectedness between developed and emerging market economies from a dynamic perspective, aiming to fill a significant gap in the literature. While existing research predominantly focuses on developed economies, this study highlights the growing influence of emerging market currencies within the global financial system. The analysis employs currency indices—namely the U.S. Dollar Index (DXY), Euro Index (InvEUR), and Swiss Franc Index (CHF)—to represent developed markets, alongside the MSCI Emerging Markets Currency Index (MSCI EM) to capture emerging market dynamics. By using currency indices instead of individual exchange rates, the study offers a more holistic and comprehensive analysis. A high-frequency dataset spanning the period from May 12, 2023, to April 16, 2025, is utilized. The analysis, conducted using the TVP-VAR-based Dynamic Connectedness Index methodology, reveals that the interconnectedness among currencies intensifies notably during periods of financial uncertainty, though remains limited in the broader sample. The total connectedness level is empirically calculated at 24%, indicating that 24% of currency volatility is attributable to external shocks. Furthermore, the decline in volatility spillovers observed from the second half of 2023 onward is interpreted as a significant indicator of reduced financial contagion and improved market functioning.
Anahtar Kelimeler
Currency Connectedness Financial Contagion Dynamic Connectedness Spillover Decomposition TVP-VAR
Kaynakça
- Almansour, B. Y., Uddin, M. M., Elkrghli, S. & Almansour, A. Y. (2023). The dynamic connectedness between cryptocurrencies and foreign exchange rates: Evidence by TVP-VAR approach. Industrial Engineering & Management Systems, 22(3), 349-362.
- Antonakakis, N. & Gabauer, D. (2017). Refined measures of dynamic connectedness based on TVP-VAR (MPRA Paper No. 78282). University Library of Munich.
- Baklaci, H. F., Aydoğan, B. & Yelkenci, T. (2020). Impact of stock market trading on currency market volatility spillovers. Research in International Business and Finance, 52, 101182.
- Baruník, J., Kočenda, E. & Vácha, L. (2017). Asymmetric volatility connectedness on the forex market. Journal of International Money and Finance, 77, 39-56.
- Bubák, V., Kočenda, E. & Žikeš, F. (2011). Volatility transmission in emerging European foreign exchange markets. Journal of Banking & Finance, 35(11), 2829-2841.
- Chow, H. K. (2018). Return and volatility spillovers between the Renminbi and Asian Currencies. Journal of Finance and Economics, 11(1), 1-15.
- Diebold, F. X. & Yılmaz, K. (2014). On the network topology of variance decompositions: Measuring the connectedness of financial firms. Journal of econometrics, 182(1), 119-134.
- Diebold, F. X. & Yılmaz, K. (2015). Foreign Exchange Market. Financial and macroeconomic connectedness: A network approach to measurement and monitoring içinde (ss. 152-181). USA: Oxford University Press.
- Diebold, F. X. & Yilmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal, 119(534), 158-171.
- Diebold, F. X. & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57-66.
- Do, H. X., Brooks, R., Treepongkaruna, S. & Wu, E. (2016). Stock and currency market linkages: New evidence from realized spillovers in higher moments. International Review of Economics & Finance, 42, 167-185.
- Elsayed, A. H., Gozgor, G. & Lau, C. K. M. (2020). Causality and dynamic spillovers among cryptocurrencies and currency markets. International Journal of Finance & Economics, 1-15.
- Engle, R. F., Ito, T. & Lin, W.-L. (1988). Meteor showers or heat waves? Heteroskedastic intra-daily volatility in the foreign exchange market. National Bureau of Economic Research.
- Greenwood-Nimmo, M., Nguyen, V. H. & Rafferty, B. (2016). Risk and return spillovers among the G10 currencies. Journal of Financial Markets, 31, 43-62.
- He, S., Cheng, Z., Wang, W. & Luo, Z. (2025). What drives currency connectedness? Evidence from the BRICS currencies. Applied Economics, 57(1), 67-85. doi:10.1080/00036846.2024.2333712
- Hung, N. T. (2020). Market integration among foreign exchange rate movements in central and eastern European countries. Society and Economy, 42(1), 1-20.
- Kanas, A. (2000). Volatility spillovers between stock returns and exchange rate changes: International evidence. Journal of Business Finance & Accounting, 27(3-4), 447-467.
- Karabıyık, C. (2020). Türkiye’de Uluslararası İktisadi Dalgalanmaların Yayılma Etkisi ve Konjonktür Karşıtı Para Politikası. Eskişehir Osmangazi Üniversitesi İktisadi ve İdari Bilimler Dergisi, 15(3), 1095-1118.
- Kavli, H. & Kotze, K. (2014). Spillovers in exchange rates and the effects of global shocks on emerging market currencies. South African Journal of Economics, 82(2), 209-238.
- Medvedev, D., Rama, M. & Ikeda, Y. (2019). Advanced-country policies and emerging-market currencies: The impact of US tapering on India’s rupee. International Finance, 22(1), 35-52.
- Menkhoff, L. (2013). Foreign exchange intervention in emerging markets: A survey of empirical studies. The World Economy, 36(9), 1187-1208.
- Mensi, W., Ali, S. R. M., Vo, X. V. & Kang, S. H. (2022). Multiscale dependence, spillovers, and connectedness between precious metals and currency markets: A hedge and safe-haven analysis. Resources Policy, 77, 102752. doi:10.1016/j.resourpol.2022.102752
- Mittal, A., Sehgal, S. & Mittal, A. (2019). Dynamic currency linkages between select emerging market economies: An empirical study. Cogent Economics & Finance, 7(1681581).
- Mo, W.-S., Yang, J. J. & Chen, Y.-L. (2023). Exchange rate spillover, carry trades, and the COVID-19 pandemic. Economic Modelling, 121, 106222. doi:10.1016/j.econmod.2023.106222
- Parkinson, M. (1980). The extreme value method for estimating the variance of the rate of return. Journal of business, 53(1), 61-65.
- Ramos, R. (2019). Financialization, different types of financial integration and its impacts on emerging market currencies. Working paper 354, Institute of Economics, Unicamp.
- Reinhart, C. M. & Rogoff, K. S. (2008). Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison. American Economic Review, 98(2), 339-344. doi:10.1257/aer.98.2.339
- Rose, A. K. (2011). Exchange rate regimes in the modern era: Fixed, floating, and flaky. Journal of Economic Literature, 49(3), 652-672.
- Roy, R. P. & Roy, S. S. (2017). Financial contagion and volatility spillover: An exploration into Indian commodity derivative market. Economic Modelling, 67, 368-380.
- Shahzad, S. J. H., Arreola-Hernandez, J., Rahman, M. L., Uddin, G. S. & Yahya, M. (2020). Asymmetric interdependence between currency markets’ volatilities across frequencies and time scales. International Journal of Finance & Economics, 1-22.
- Shousha, S. (2019). The dollar and emerging market economies: Financial vulnerabilities meet the international trade system. FRB International Finance Discussion Paper, (1258).
- Walid, C., Chaker, A., Masood, O. & Fry, J. (2011). Stock market volatility and exchange rates in emerging countries: A Markov-state switching approach. Emerging Markets Review, 12(3), 272-292.
Öz
This study examines currency connectedness between developed and emerging market economies from a dynamic perspective, aiming to fill a significant gap in the literature. While existing research predominantly focuses on developed economies, this study highlights the growing influence of emerging market currencies within the global financial system. The analysis employs currency indices—namely the U.S. Dollar Index (DXY), Euro Index (InvEUR), and Swiss Franc Index (CHF)—to represent developed markets, alongside the MSCI Emerging Markets Currency Index (MSCI EM) to capture emerging market dynamics. By using currency indices instead of individual exchange rates, the study offers a more holistic and comprehensive analysis. A high-frequency dataset spanning the period from May 12, 2023, to April 16, 2025, is utilized. The analysis, conducted using the TVP-VAR-based Dynamic Connectedness Index methodology, reveals that the interconnectedness among currencies intensifies notably during periods of financial uncertainty, though remains limited in the broader sample. The total connectedness level is empirically calculated at 24%, indicating that 24% of currency volatility is attributable to external shocks. Furthermore, the decline in volatility spillovers observed from the second half of 2023 onward is interpreted as a significant indicator of reduced financial contagion and improved market functioning.
Anahtar Kelimeler
Currency Connectedness Financial Contagion Dynamic Connectedness Spillover Decomposition TVP-VAR
Kaynakça
- Almansour, B. Y., Uddin, M. M., Elkrghli, S. & Almansour, A. Y. (2023). The dynamic connectedness between cryptocurrencies and foreign exchange rates: Evidence by TVP-VAR approach. Industrial Engineering & Management Systems, 22(3), 349-362.
- Antonakakis, N. & Gabauer, D. (2017). Refined measures of dynamic connectedness based on TVP-VAR (MPRA Paper No. 78282). University Library of Munich.
- Baklaci, H. F., Aydoğan, B. & Yelkenci, T. (2020). Impact of stock market trading on currency market volatility spillovers. Research in International Business and Finance, 52, 101182.
- Baruník, J., Kočenda, E. & Vácha, L. (2017). Asymmetric volatility connectedness on the forex market. Journal of International Money and Finance, 77, 39-56.
- Bubák, V., Kočenda, E. & Žikeš, F. (2011). Volatility transmission in emerging European foreign exchange markets. Journal of Banking & Finance, 35(11), 2829-2841.
- Chow, H. K. (2018). Return and volatility spillovers between the Renminbi and Asian Currencies. Journal of Finance and Economics, 11(1), 1-15.
- Diebold, F. X. & Yılmaz, K. (2014). On the network topology of variance decompositions: Measuring the connectedness of financial firms. Journal of econometrics, 182(1), 119-134.
- Diebold, F. X. & Yılmaz, K. (2015). Foreign Exchange Market. Financial and macroeconomic connectedness: A network approach to measurement and monitoring içinde (ss. 152-181). USA: Oxford University Press.
- Diebold, F. X. & Yilmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal, 119(534), 158-171.
- Diebold, F. X. & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57-66.
- Do, H. X., Brooks, R., Treepongkaruna, S. & Wu, E. (2016). Stock and currency market linkages: New evidence from realized spillovers in higher moments. International Review of Economics & Finance, 42, 167-185.
- Elsayed, A. H., Gozgor, G. & Lau, C. K. M. (2020). Causality and dynamic spillovers among cryptocurrencies and currency markets. International Journal of Finance & Economics, 1-15.
- Engle, R. F., Ito, T. & Lin, W.-L. (1988). Meteor showers or heat waves? Heteroskedastic intra-daily volatility in the foreign exchange market. National Bureau of Economic Research.
- Greenwood-Nimmo, M., Nguyen, V. H. & Rafferty, B. (2016). Risk and return spillovers among the G10 currencies. Journal of Financial Markets, 31, 43-62.
- He, S., Cheng, Z., Wang, W. & Luo, Z. (2025). What drives currency connectedness? Evidence from the BRICS currencies. Applied Economics, 57(1), 67-85. doi:10.1080/00036846.2024.2333712
- Hung, N. T. (2020). Market integration among foreign exchange rate movements in central and eastern European countries. Society and Economy, 42(1), 1-20.
- Kanas, A. (2000). Volatility spillovers between stock returns and exchange rate changes: International evidence. Journal of Business Finance & Accounting, 27(3-4), 447-467.
- Karabıyık, C. (2020). Türkiye’de Uluslararası İktisadi Dalgalanmaların Yayılma Etkisi ve Konjonktür Karşıtı Para Politikası. Eskişehir Osmangazi Üniversitesi İktisadi ve İdari Bilimler Dergisi, 15(3), 1095-1118.
- Kavli, H. & Kotze, K. (2014). Spillovers in exchange rates and the effects of global shocks on emerging market currencies. South African Journal of Economics, 82(2), 209-238.
- Medvedev, D., Rama, M. & Ikeda, Y. (2019). Advanced-country policies and emerging-market currencies: The impact of US tapering on India’s rupee. International Finance, 22(1), 35-52.
- Menkhoff, L. (2013). Foreign exchange intervention in emerging markets: A survey of empirical studies. The World Economy, 36(9), 1187-1208.
- Mensi, W., Ali, S. R. M., Vo, X. V. & Kang, S. H. (2022). Multiscale dependence, spillovers, and connectedness between precious metals and currency markets: A hedge and safe-haven analysis. Resources Policy, 77, 102752. doi:10.1016/j.resourpol.2022.102752
- Mittal, A., Sehgal, S. & Mittal, A. (2019). Dynamic currency linkages between select emerging market economies: An empirical study. Cogent Economics & Finance, 7(1681581).
- Mo, W.-S., Yang, J. J. & Chen, Y.-L. (2023). Exchange rate spillover, carry trades, and the COVID-19 pandemic. Economic Modelling, 121, 106222. doi:10.1016/j.econmod.2023.106222
- Parkinson, M. (1980). The extreme value method for estimating the variance of the rate of return. Journal of business, 53(1), 61-65.
- Ramos, R. (2019). Financialization, different types of financial integration and its impacts on emerging market currencies. Working paper 354, Institute of Economics, Unicamp.
- Reinhart, C. M. & Rogoff, K. S. (2008). Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison. American Economic Review, 98(2), 339-344. doi:10.1257/aer.98.2.339
- Rose, A. K. (2011). Exchange rate regimes in the modern era: Fixed, floating, and flaky. Journal of Economic Literature, 49(3), 652-672.
- Roy, R. P. & Roy, S. S. (2017). Financial contagion and volatility spillover: An exploration into Indian commodity derivative market. Economic Modelling, 67, 368-380.
- Shahzad, S. J. H., Arreola-Hernandez, J., Rahman, M. L., Uddin, G. S. & Yahya, M. (2020). Asymmetric interdependence between currency markets’ volatilities across frequencies and time scales. International Journal of Finance & Economics, 1-22.
- Shousha, S. (2019). The dollar and emerging market economies: Financial vulnerabilities meet the international trade system. FRB International Finance Discussion Paper, (1258).
- Walid, C., Chaker, A., Masood, O. & Fry, J. (2011). Stock market volatility and exchange rates in emerging countries: A Markov-state switching approach. Emerging Markets Review, 12(3), 272-292.
Ayrıntılar
| Birincil Dil | İngilizce |
|---|---|
| Konular | Ekonometrik ve İstatistiksel Yöntemler, Uluslararası Finans |
| Bölüm | Makaleler |
| Yazarlar | |
| Erken Görünüm Tarihi | 29 Haziran 2025 |
| Yayımlanma Tarihi | 30 Haziran 2025 |
| Gönderilme Tarihi | 6 Mayıs 2025 |
| Kabul Tarihi | 4 Haziran 2025 |
| Yayımlandığı Sayı | Yıl 2025 Cilt: 8 Sayı: 1 |
