Abstrakt
We analyze time-varying exchange rate co-movements and volatility spillovers between the Czech koruna, the Polish zloty, the Hungarian forint and the dollar/euro from 1999 to 2016. We apply the dynamic conditional correlations (DCC) model and the Diebold Yilmaz spillover index to examine the periods prior to and during the GFC, plus during and after the EU debt crisis.
We found declining conditional correlations between new EU exchange rates prior to both crises. During the GFC and the European debt crisis, the correlations reach the lowest level, and increase afterwards.
Based on the DCC model results we calculate portfolio weights and hedge ratios. We show that during both crises portfolio diversification benefits increase but hedging costs rise as well.
Based on the spillover index we document that during calm periods most of the volatilities are due to each currency's own history. However, during the distress periods volatility spillovers among currencies increase substantially.