نوسانات نرخ ارز در بحران های مالی سراسری

This paper studies the impact of global financial turmoil on the exchange rate policies in emerging countries. Spillovers from advanced financial markets to currencies in emerging countries are likely to be exacerbated during crisis periods. To test this hypothesis, we assess the exchange rate policies by currencies’ volatility and investigate their relationship to a global financial stress indicator, measured by the volatility on global markets. We introduce the possibility of nonlinearities by running smooth transition regressions over a sample of 21 emerging countries from January 1994 to September 2009. The results confirm that exchange rate volatility does increase more than proportionally with the global financial stress, for most countries in the sample. We also evidence regional contagion effects spreading from one emerging currency to other currencies in the neighboring area.

Despite the long-lasting prevalence of the USD as an anchor currency, its key role in the international monetary system has been more and more challenged for several years and some evolution has begun to take shape, especially since the start of the present financial crisis. Many countries have indeed loosened the link of their currency to the USD in the global financial turmoil that started in July 2007, either because they have been pushed into this strategy by market pressures, or for tactical reasons. In this paper, we try to address this evolution by answering the following questions: (i) Are exchange rates characterized by greater volatility since the start of the financial turmoil in July 2007? (ii) Is this evolution in line with what happened during previous crises? All the rationales that can be found in the literature on contagion across markets point to a positive answer to these questions (see e.g. Corsetti et al., 1999 and Kaminsky and Reinhart, 2000). More generally, we aim at investigating the linkages between currency markets in emerging countries and financial market strains in the global economy. We expect that the co-movements between these two types of markets are exacerbated in episodes of financial turmoil. To check these hypotheses more precisely, we start by considering that the exchange rate regimes can be proxied by the exchange rate volatility; in this respect, we follow the spirit of the works done by Reinhart and Rogoff (2004) and Ilzetzki et al. (2008). Then, we study the relationships between currency volatility for a sample of emerging countries and various proxies for stress on global financial markets. This comes down to testing the volatility spillovers from advanced financial markets to emerging currency markets. The transmission of volatility may be a normal phenomenon in globalized markets, but can also take on abnormal turns during episodes of financial stress, which is a typical symptom of “contagion.” Contagion effects can be evidenced empirically by different methods (for a survey see Dungey et al., 2005), although it is difficult to disentangle the precise channels at stake. Forbes and Rigobon (2002) insist on the rupture in the usual interdependence mechanisms between markets during a crisis. These disrupted links can be captured by different ways and most of them involve acknowledging nonlinearities in the transmission channels. Favero and Giavazzi (2000) introduce dummy variables for outliers in a VAR model. Eichengreen et al., 1996a and Eichengreen et al., 1996b also rely on dummy variables linked to the pressures on the exchange market. Some works focus on co-movements when asset returns are extreme (Bae et al., 2003 and Hartman et al., 2004). Here, we aim at testing the hypothesis that strains in global financial markets are likely to affect exchange rates in emerging markets more badly when they reached high degrees. To this end, we run smooth transition regressions (STR) and test for nonlinearities over a sample of 21 emerging countries during the period from January 1994 to September 2009. The rest of the paper is organized as follows. Section 2 presents the data and compares exchange rate and financial market volatilities around crisis episodes. Relying on the estimation of STR models, Section 3 assesses the relationships between global financial stress and emerging currency volatility. Section 4 is devoted to the study of regional contagion effects within the emerging countries by testing whether the intensity of such effects differs across crisis and noncrisis periods. Section 5 concludes.

Many emerging countries have loosened the link of their currencies to the US dollar since the burst of the subprime crisis in July 2007, mainly because they had to face violent market pressures, as speculators bid down their currencies. The main relevant explanations may rely on contagion effects. For example, investors bearing heavy losses on advanced stock markets and lacking liquidity to meet their margin calls or their risk management requirements may engage in selling off all sorts of risky assets across the board, including their assets on emerging countries in local currencies. Crises are also the times when carry-trades unwind, as risk-aversion rises. Incidentally, the rationale to pegging to the dollar could also have been wiped off by neighboring countries giving up their peg. Consequently, exchange rate policies in emerging countries are likely to be contingent on the situation of financial markets in advanced countries, spillovers being particularly strong in the aftermath of a crisis. To check for this hypothesis, we test the links between exchange rate policies and financial strains in advanced markets. To do that, we measure exchange rate policies by the degree of currency volatility, and assess the global financial stress by the volatility both on world stock markets and on commodity markets. The results confirm that the volatility of exchange rates tends to increase more than proportionally with the indicator of global financial strains. We also evidence nonlinearities in the contagion effects spreading from one emerging currency to its neighbors. According to these results, spillovers from financial turmoil in advanced markets do result in the loosening of exchange rate policies in emerging countries. This has been manifest since the outset of the subprime crisis, although this does not exclude the possibility that other factors have been at work in the renewal of exchange rate arrangements. In this case, the situation may not be reversed by the return to normal. In particular, the role of the US dollar in the international monetary system has been more and more questioned for several years, while the US has kept on accumulating external debt, threatening the long-term value of its currency. This could also be another reason for countries to slacken their links to the US dollar.