Economic and political effects on currency clustering
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Citation (published version)Kremer, M., Becker, A. P., Vodenska, I., Stanley, H. E., & Schäfer, R. (2019). Economic and political effects on currency clustering dynamics. Quantitative Finance, 19(5), 705-716. https://doi.org/10.1080/14697688.2018.1532101
We propose a new measure named the symbolic performance to better understand the structure of foreign exchange markets. Instead of considering currency pairs, we isolate a quantity that describes each currency’s position in the market, independent of a base currency. We apply the k-means++ clustering algorithm to analyze how the roles of currencies change over time, from reference status or minimal apprecia- tions and depreciations with respect to other currencies to large appreciations and depreciations. We show how diﬀerent central bank interventions and economic and political developments, such as the cap on the Swiss franc to the euro enforced by the Swiss National Bank or the Brexit vote, aﬀect the position of a currency in the global foreign exchange market.
This is an Accepted Manuscript of an article published by Taylor & Francis in Quantitative Finance vol. 19, no. 5, available online: https://www.tandfonline.com/doi/abs/10.1080/14697688.2018.1532101.