Co-movements among major European exchange rates: A multivariate time-varying asymmetric approach

This paper adopts a multivariate asymmetric dynamic conditional correlation GARCH model to examine the interdependence of US dollar (USD) exchange rates expressed in euro (EUR), British pound (GBP), and Swiss franc (CHF). The effect of Europe's recent financial turmoil on these dynamic correlations is investigated. The findings suggest asymmetric responses in correlations among the three exchange rates, namely, higher dependency during periods of joint appreciation than during periods of joint depreciation. Moreover, the results indicate that the crisis may have triggered the shift of fund flows to CHF in particular, which is widely believed to be a safe-haven currency. •Linkages of US dollar exchange rates against EUR, GBP, and CHF are studied.•A multivariate asymmetric DCC approach by Cappiello (2006) et al. is adopted.•Several dummies are employed for sensitivity analysis of the crisis period.•Evidence of asymmetric dynamic correlations among the currencies is found.•The European crisis lowered the DCC for CHF–EUR and GBP–CHF pairs.