What drives fluctuations in exchange rate growth in emerging markets – A multi-level dynamic factor approach

Clark Liu; Ben Zhe Wang; Huanhuan Wang; Ji Zhang

doi:10.1016/j.ecosys.2019.100696

What drives fluctuations in exchange rate growth in emerging markets – A multi-level dynamic factor approach

Clark Liu
, Ben Zhe Wang
, Huanhuan Wang
, Ji Zhang^*

^*Corresponding author for this work

Law School

Tsinghua University
Macquarie University

Research output: Contribution to journal › Article › peer-review

8 Scopus citations

Abstract

Historically, exchange rates in many emerging economies have been volatile. We use a dynamic hierarchical factor model to investigate the driving forces behind these fluctuations in exchange rate growth and find that in recent years, especially since the Great Recession, the common (world) factor has become more important. We also find that, since 2009, US monetary policy and Chinese economic growth have had much greater effects on emerging market exchange rate growth fluctuations. The historical decomposition indicates that 18.8% and 23% of the variations in the world factor after 2009 can be explained by US monetary policy shock and Chinese industrial production shock, respectively.

Original language	English
Article number	100696
Journal	Economic Systems
Volume	43
Issue number	2
DOIs	https://doi.org/10.1016/j.ecosys.2019.100696
State	Published - Jun 2019

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Keywords

Chinese slowdown
Dynamic factor model
Emerging economy
Exchange rate
US monetary policy

Access to Document

10.1016/j.ecosys.2019.100696

Cite this

@article{6b07d10e5f27436a9737c83373874886,

title = "What drives fluctuations in exchange rate growth in emerging markets – A multi-level dynamic factor approach",

abstract = "Historically, exchange rates in many emerging economies have been volatile. We use a dynamic hierarchical factor model to investigate the driving forces behind these fluctuations in exchange rate growth and find that in recent years, especially since the Great Recession, the common (world) factor has become more important. We also find that, since 2009, US monetary policy and Chinese economic growth have had much greater effects on emerging market exchange rate growth fluctuations. The historical decomposition indicates that 18.8\% and 23\% of the variations in the world factor after 2009 can be explained by US monetary policy shock and Chinese industrial production shock, respectively.",

keywords = "Chinese slowdown, Dynamic factor model, Emerging economy, Exchange rate, US monetary policy",

author = "Clark Liu and Wang, \{Ben Zhe\} and Huanhuan Wang and Ji Zhang",

note = "Publisher Copyright: {\textcopyright} 2019 Elsevier B.V.",

year = "2019",

month = jun,

doi = "10.1016/j.ecosys.2019.100696",

language = "英语",

volume = "43",

journal = "Economic Systems",

issn = "0939-3625",

publisher = "Elsevier B.V.",

number = "2",

}

TY - JOUR

T1 - What drives fluctuations in exchange rate growth in emerging markets – A multi-level dynamic factor approach

AU - Liu, Clark

AU - Wang, Ben Zhe

AU - Wang, Huanhuan

AU - Zhang, Ji

PY - 2019/6

Y1 - 2019/6

N2 - Historically, exchange rates in many emerging economies have been volatile. We use a dynamic hierarchical factor model to investigate the driving forces behind these fluctuations in exchange rate growth and find that in recent years, especially since the Great Recession, the common (world) factor has become more important. We also find that, since 2009, US monetary policy and Chinese economic growth have had much greater effects on emerging market exchange rate growth fluctuations. The historical decomposition indicates that 18.8% and 23% of the variations in the world factor after 2009 can be explained by US monetary policy shock and Chinese industrial production shock, respectively.

AB - Historically, exchange rates in many emerging economies have been volatile. We use a dynamic hierarchical factor model to investigate the driving forces behind these fluctuations in exchange rate growth and find that in recent years, especially since the Great Recession, the common (world) factor has become more important. We also find that, since 2009, US monetary policy and Chinese economic growth have had much greater effects on emerging market exchange rate growth fluctuations. The historical decomposition indicates that 18.8% and 23% of the variations in the world factor after 2009 can be explained by US monetary policy shock and Chinese industrial production shock, respectively.

KW - Chinese slowdown

KW - Dynamic factor model

KW - Emerging economy

KW - Exchange rate

KW - US monetary policy

UR - https://www.scopus.com/pages/publications/85070199384

U2 - 10.1016/j.ecosys.2019.100696

DO - 10.1016/j.ecosys.2019.100696

M3 - 文章

AN - SCOPUS:85070199384

SN - 0939-3625

VL - 43

JO - Economic Systems

JF - Economic Systems

IS - 2

M1 - 100696

ER -

What drives fluctuations in exchange rate growth in emerging markets – A multi-level dynamic factor approach

Abstract

UN SDGs

Keywords

Access to Document

Other files and links

Fingerprint

Cite this