Regime-Switching Foreign Exchange Rate Exposures of the Asian Emerging Markets

摘要

The purpose of this study is to improve the traditional linear measuring framework of market-level foreign exchange rate exposure by considering the long-run cointegration relationship with error correction and panel smooth transition function to show the short-run nonlinear regime-switching feature of exposure. The unique feature of the nonlinear exposure model in this paper in contrast to previous studies is that the exposure is measured under the framework of PSTR-ECM with consideration of linking the stock, the exchange rate, and the interest rate together by introducing transition variable which represents investors' expectation of the financial markets. Three alternative transition variables were considered, including the CBOE Volatility Index, the long-run and short-run interest rate spread of US bonds, and that of China bonds, respectively. Finally, it is found that the Asian emerging markets face parity risks of regime-switching foreign exchange rate exposures against the USD and the CNY.