Quantifying Informational Linkages in a Global Model of Currency Spot Markets

Melbourne Institute Working Paper No. 17/14

Date: 2014

Author(s):

Matthew Greenwood-Nimmo
Viet Hoang Nguyen
Yongcheol Shin

Abstract

We develop a global vector autoregressive model to study the transmission of information between currency spot markets. Our model accounts for both simultaneous and dynamic interactions between exchange rates and order flows using historical data from the Reuters Dealing 2000–1 platform for the period May–August 1996. By analysing the network topography of the system, we find that currency markets are intricately linked and that the Deutsche Mark and the Yen exert a leading influence over the European currencies. Furthermore, using a novel technique we find that the Yen and Sterling act as safe haven currencies.