Home

>

Risk and return spillovers in a global model of the Foreign Exchange Network

25 August 2021
Publication Type: Working Paper
JEL Code: F31, G01, G15

We developed a network model to capture the dynamic interactions among foreign exchange returns and realised risk measures among 20 developed and emerging market currencies, including the rand (ZAR). We demonstrate how this framework can be used to assess the sensitivity of a given currency to shocks from other currencies and to provide narratives contextualising currency movements, focusing on the ZAR. We show that variations in the riskreturn profile of the USDZAR correlate with variations in the risk-return profile of many other currencies, and that this is especially notable with respect to emerging market currencies. We interpret this as evidence of the ZAR’s role as a bellwether emerging market currency. We show that the model is able to highlight risk transmission channels in a timely manner during foreign exchange flash crashes and periods of heightened financial market uncertainty.

Working paper 870
1 August 2021
SHARE THIS Working Paper PUBLICATION:

Related The Covid Project Publications

COVID-19 and the South African Economy
Discussion Document 02 As South Africa looks to navigate itself out...
Published: 1 September 2022
Discussion Document
Building a competitive and dynamic green industrial sector in South Africa after COVID-19
Policy Paper 28 COVID-19 gave the world a glimpse of how devastatin...
Published: 28 June 2021
Policy Paper
Addressing low labour utilisation in South Africa
Policy Paper 27 South Africa’s stubbornly low labour utilisation ra...
Published: 28 June 2021
Policy Paper
Understanding South Africa’s trade policy and performance
Policy Paper 26 South Africa’s exports have lagged behind the rest ...
Published: 28 June 2021
Policy Paper
Sailing into the Wind: evaluating the (near) future of Monetary Policy in South Africa
Policy Paper 25 This paper evaluates the main challenges facing Sou...
Published: 9 April 2021
Policy Paper
Financial Statecraft: Government Choice of Debt Instruments
We explore the diversity of means by which governments borrow ̵...
Published: 24 June 2020
Working Paper
Labour market and monetary policy in South Africa
Unemployment is the defining characteristic of the South African ec...
Published: 29 September 2015
Policy Brief