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ABSTRACT
We examine the connectedness among the series of four exchange rates with respect to the Indian Rupee. The results of Diebold and Yilmaz method which measures time-domain connectedness, show that the overall connectedness of the system is 30.15%. The results of Baruník and Křehlík approach which measures frequency-domain connectedness, exhibit that in the total connectedness the maximum contribution is from highest frequency (14.27%) and the lowest contribution is made by the second-lowest frequency (2.03%). Finally, the dynamic connectedness is also examined with rolling window methods. These results are very critical in understanding the connectedness among various exchange rate markets.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. The forecast horizon of 100 was selected for the estimation of both Baruník and Křehlík (Citation2018) frequency-domain spillover analysis and Diebold and Yilmaz (Citation2012) time-domain spillover analysis so that the results from both the methods will be comparable.
2. Lag selection for VAR is based on AIC and maximum lags were set to 30.
3. There is no specific criterion to select the window-size. However, it should be neither too small nor too large in order to avoid the small sample bias and over parameterization. Most of the researcher choose 10%, or 20% of the sample size as rolling window size. We choose here 1000 as rolling window size which is close to 20% of our sample size.