Changing patterns of Asian currencies’ co-movement with the US dollar and the Chinese renminbi: Evidence from a wavelet multiresolution analysis

ABSTRACT

We extend the Frankel–Wei approach by using wavelet analysis to evaluate the relative importance of the dollar and the renminbi as anchor currencies at different time scales. We find that Asian currencies’ co-movement with the dollar weakened after the global financial crisis, while that with the renminbi strengthened particularly after China introduced a new exchange rate management system in 2015. The evidence suggests that emerging Asian economies have recently attached more importance to the renminbi as an anchor in exchange rate management.

KEYWORDS:

• Wavelet analysis
• emerging Asian currencies
• anchor currency
• US dollar
• Chinese renminbi

JEL CLASSIFICATION:

• C51
• F31
• G15

Acknowledgements

The authors are grateful to the editor and anonymous referee for their helpful comments on an earlier version of the article.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The MODWT has advantages over the DWT because its sample size is not restricted to a multiple of $2^{J_0}$ and the details and smooths are associated with zero phase filters. LA (8) has relative advantages because it introduces a lesser degree of artefacts into the MRA due to wavelet filters and DWT coefficients can be aligned in time. See Percival and Walden (2000) for a detailed discussion.

Additional information

Funding

This work was supported by the Japan Society for the Promotion of Science London [KAKENHI 15K03429&18K01610].