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Network analysis of exchange data: interdependence drives crisis contagion

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Abstract

In this paper, we examine linear and nonlinear co-movements that appear in the real exchange rates of a group of 28 developed and developing countries. The matrix of Pearson correlation and Phase Synchronous coefficients have been used in order to construct a topology and hierarchy of countries by using the Minimum Spanning Tree (MST). In addition, the MST cost and global correlation coefficients have been calculated to observe the co-movements’ dynamics throughout the time sample. By comparing Pearson and Phase Synchronous information, a new methodology is emphasized; one that can uncover meaningful information pertaining to the contagion economic issue and, more generally, the debate surrounding interdependence and/or contagion in financial time series. Our results suggest some evidence of contagion in the Asian currency crises; however, this contagion is driven by previous and stable interdependence.

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Notes

  1. We have used the real exchange rate, instead of the nominal exchange rate, to avoid the influence of hyperinflation episodes in some countries during the considered period. Moreover, returns of real exchange rates have been used in order to stabilize time series, making them suitable for further analysis.

  2. In Sect. 2.2 the phase synchronization concept is explained in depth.

  3. Different number of data points have been used in both cases; 155 months in Ortega and Matesanz (2006) and 128 months in the present work.

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Acknowledgments

DM thanks financial support from the Spanish Ministry of Education through the José Castillejo Program (JC2010-0273). GO thanks financial support from CONICET PIP (PIP 11420100100261) and Universidad Nacional de Quilmes PUNQ 1000/11.GO is member of CONICET Argentina. The authors are very grateful to Teressa Canosa for exhaustive language revision.

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Authors and Affiliations

  1. Applied Economics Department, University of Oviedo, Oviedo, Spain

    David Matesanz

  2. Science and Technology Department, Universidad Nacional de Quilmes and CONICET, Buenos Aires, Argentina

    Guillermo J. Ortega

Authors
  1. David Matesanz
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  2. Guillermo J. Ortega
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Corresponding author

Correspondence to David Matesanz.

Appendix

Appendix

The 28 countries included in this work are as follows (order by increasing entropy):

Argentine (ARG), Malaysia (MAL), Thailand (THA), Mexico (MEX), Korea (KOR), Indonesia (INDO), Brazil (BRA), Venezuela (VEN), Peru (PER), India (INDI), Ecuador (ECU), Turkey (TUR), Colombia (COL), Singapore (SIN), Philippines (PHI), United Kingdom (U_K), Sweden (SWE), Italy (ITA), Ireland (IRE), Finland (FIN), Chile (CHI), Greece (GRE), Portugal (POR), Switzerland (SWI), Denmark (DEN), Spain (SPA), Norway (NOR), Australia (AUS).

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Matesanz, D., Ortega, G.J. Network analysis of exchange data: interdependence drives crisis contagion. Qual Quant 48, 1835–1851 (2014). https://doi.org/10.1007/s11135-013-9855-z

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