Financial stress and its non-linear impact on CEE exchange rates

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11230%2F18%3A10376533" target="_blank" >RIV/00216208:11230/18:10376533 - isvavai.cz</a>
Alternative codes found
RIV/67985998:_____/18:00490138 RIV/00216208:11640/18:00496144
Result on the web
<a href="https://doi.org/10.1016/j.jfs.2018.04.008" target="_blank" >https://doi.org/10.1016/j.jfs.2018.04.008</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1016/j.jfs.2018.04.008" target="_blank" >10.1016/j.jfs.2018.04.008</a>

Result language
angličtina
Original language name
Financial stress and its non-linear impact on CEE exchange rates
Original language description
This paper studies the reaction of selected CEE (satellite) currencies to increased financial stress in the euro area (core) and also in global financial markets. We suggest that this reaction might be non-linear; the "safe haven" status of a satellite currency may hold in calm periods, but breaks down when risk aversion is elevated. A stylized model of portfolio allocation between assets denominated in euro and the satellite currency suggests the presence of two regimes characterized by different reactions of the exchange rate to an increased stress in the euro area. In the "diversification" regime, the satellite currency appreciates in reaction to an increase in the expected variance of EUR assets, while in the "flight to safety" regime, the satellite currency depreciates in response to increased expected volatility. We suggest that the switch between regimes is related to changes in risk aversion, driven by the level of strains in the financial system as captured by financial stress indicators. Using the Bayesian Markov-switching VAR model, the presence of these regimes is identified in the case of the Czech koruna, the Hungarian forint and the Polish zloty.
Czech name
—
Czech description
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Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
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OECD FORD branch
50201 - Economic Theory

Project
<a href="/en/project/GA13-06229S" target="_blank" >GA13-06229S: The international transmission of shocks in the context of macro-financial linkages</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2018
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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