Global Foreign Exchange Market Comovements and Risk Contagion
Based on the time-varying generalized dynamic factor model,this paper uses the daily foreign exchange market data of 64 economies to measure the comovement of global foreign exchange markets from the instantaneous long-term and frequency domain perspectives,and examines in detail the heterogeneity of the exchange rate risk contagion under the major shocks By using the random forest model and SHAP value explanatory method,this paper analyzes the channels of exchange rate risk contagion and explores the relative importance of influence factors for exchange rate risk conta-gion.The conclusions are as follows:(1)The degree of interconnectedness among global foreign exchange markets has time-varying synergistic characteristics,and the intensity of exchange rate risk contagion increases significantly during the period of large shocks,which is mainly driven by long-term shocks.The degree of low-frequency exchange rate interconnectedness is stronger in the frequency-domain perspective.Risk contagion a-mong global foreign exchange markets is time-varying and synergistic.(2)For economies in different regions and at different levels of economic de-velopment,the exchange rate risk contagion intensity varies,and behaves differently in China,the United States and other countries and regions during the period when large shocks occur.(3)Economic fundamentals are the main channels of exchange rate risk contagion in all perspectives,and U.S.economic conditions and interest rates have high relative importance for exchange rate risk contagion.The research provides a useful refer-ence for preventing risk contagion in the foreign exchange market and for fending off systemic risk in the event of major shocks.
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