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The Behavior of Currencies during Risk-off Episodes

Author/Editor: Reinout De Bock | Irineu E. Carvalho Filho
Electronic Access: Free Full Text (PDF file size is 1,461KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Episodes of increased global risk aversion, also known as risk-off episodes, have become more frequent and severe since 2007. During these episodes, currency markets exhibit recurrent patterns, as the Japanese yen, Swiss franc, and U.S. dollar appreciate against other G-10 and emerging market currencies. The pattern of these moves can be explained by a combination of fundamental factors, such as the nominal interest rate, the international investment position and measures of exchange rate misalignment, and market-liquidity factors, such as bid-offer spreads and restrictions on international capital flows. We also find that currency performance in a risk-off episode has become more related to a currency?s yield and relationship to broader risks in recent years.
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Series: Working Paper No. 13/8
Subject(s): Currencies | Exchange rates | Capital flows
    Published:   January 11, 2013        
    ISBN/ISSN:   9781557755308/1018-5941   Format:   Paper
    Stock No:   WPIEA2013008   Pages:   34
    Price:   US$18.00        
    Published:   January 11, 2013        
    ISBN/ISSN:   9781557755308/2227-8885   Format:   Paper
    Stock No:   WPIEA213008   Pages:   34
    Price:   US$18.00        
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