Some currencies systematically crash together with the stock market, while others serve as a „safe haven‟. This paper studies which country macroeconomic fundamentals are consistently related to the riskiness of its currency. I look at various macroeconomic variables and find that high real interest rates in a country are associated with high downside risk of its currency, while inflation rate, nominal interest rate and other variables are not that relevant. But to be a „safe haven‟ currency, both low real interest rate and low inflation rate are required. I suggest that there is a „flight to quality‟ in the currency market when the stock market goes down.
Author: | Victoria , Dobrynskaya |
Volume: | 2011.5 |
Publisher: | INFER |
Year: | 2011 |
No. of pages: | 22 |
Category: |