In this study, we examine the role of the Euro in currency co-movements and contagion considering the USD exchange rates of six major currencies (i.e., EUR(DM), JPY, GBP, CHF, AUD, as well as, CAD). We identify ﬁve distinct intervals, each one corresponding to a diﬀerent exchange rate regime or reﬂecting diverse economic developments. First, we model conditional volatility by introducing a novel DCC-GARCH-Copula model (based on GARCH selection criteria). Then, we investigate conditional volatility connectedness employing a Bayesian TVP-(Pseudo)FAVAR model. This approach eﬀectively reﬁnes existing measures of dynamic connectedness. Findings suggest strong co-movements that diﬀer across regimes. In addition, the EUR becomes weaker following both the collapse of Lehman Brothers and the decision for the ﬁrst Economic Adjustment Program for Greece. Following the announcement of the result of the EU referendum the GBP eventually receives inﬂuence from the EUR. Results remain robust to a series of tests.
|Journal||International Journal of Finance and Economics|
|Publication status||Accepted for publication - 18 Jun 2020|
- Exchange Rates