## The Behavior of Currencies during Risk-off Episodes

_IMF Working Papers, January 11, 2013_

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**Canonical URL:** [The Behavior of Currencies during Risk-off Episodes](https://www.imf.org/en/publications/wp/issues/2016/12/31/the-behavior-of-currencies-during-risk-off-episodes-40233)

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## Bibliographic details
- Authors: Reinout De Bock, Irineu E de Carvalho Filho
- Published: January 11, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781557755308.001

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### Summary
- Episodes of increased global risk aversion, also known as risk-off episodes, have become more frequent and severe since 2007.
- During these episodes, the Japanese yen, Swiss franc, and U.S. dollar appreciate against other G-10 and emerging market currencies.
- The pattern of currency moves during risk-off episodes can be explained by a combination of:
  - fundamental factors (nominal interest rate, international investment position, measures of exchange rate misalignment), and
  - market-liquidity factors (bid-offer spreads, restrictions on international capital flows).
- Currency performance in a risk-off episode has become more related to a currency’s yield and relationship to broader risks in recent years.

### Key findings
- Safe-haven appreciation: The Japanese yen, Swiss franc, and U.S. dollar exhibit recurrent appreciation versus other G-10 and emerging market currencies during risk-off episodes.
- Increasing frequency/severity: Risk-off episodes have become more frequent and severe since 2007.
- Drivers of currency moves:
  - Fundamental drivers identified include the nominal interest rate, the international investment position, and measures of exchange rate misalignment.
  - Market-liquidity drivers identified include bid-offer spreads and restrictions on international capital flows.
- Evolving determinants: In recent years, a currency’s yield and its relationship to broader risks have become more important predictors of performance during risk-off episodes.

### Subject areas and keywords
- Subject: Balance of payments, Central bank policy rate, Currencies, Current account balance, Depreciation, Exchange rates, Financial services, Foreign exchange, Money, National accounts
- Keywords: Africa, Central bank policy rate, Currencies, currency, currency risk factors, currency weakness, Current account balance, Depreciation, exchange rates, Global, mean reversion, Mexican peso, New Zealand dollar, risk-off episode, Risk-off Episodes, safe haven currencies, U.S. dollar, Ukrainian hryvnia, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-behavior-of-currencies-during-risk-off-episodes-40233_