Abstract
The main purpose of the study is to investigate how price fluctuations of a sovereign currency are transmitted among currencies and what network traits and currency relationships are formed in this process under the background of economic globalization. As a universal equivalent, currency with naturally owned network attributes has not been paid enough attention by the traditional exchange rate determination theories because of their overemphasis of the attribute of value measurement. Considering the network attribute of currency, the characteristics of the information flow network of exchange rate are extracted and analyzed in order to research the impact they have on each other among currencies. The information flow correlation network between currencies is researched from 2007 to 2019 based on data from 30 currencies. A transfer entropy is used to measure the nonlinear information flow between currencies, and complex network indexes such as average shortest path and aggregation coefficient are used to analyze the macroscopic topology characteristics and key nodes of information flow-associated network. It was found that there may be strong information exchange between currencies when the overall market price fluctuates violently. Commodity currencies and currencies of major countries have great influence in the network, and local fluctuations may result in increased risks in the overall exchange rate market. Therefore, it is necessary to monitor exchange rate fluctuations of relevant currencies in order to prevent risks in advance. The network characteristics and evolution of major currencies are revealed, and the influence of a currency in the international money market can be evaluated based on the characteristics of the network. The world monetary system is developing towards diversification, and the currency of developing countries is becoming more and more important. Taking CNY as an example, it was found that the international influence of CNY has increased, although without advantage over other major international currencies since 2015, and this trend continues even if there are trade frictions between China and the United States.
Highlights
Exchange rate determination theories have gradually formed theories such as the purchasing power parity theory reflecting commodity market equilibrium; the interest rate parity theory reflecting the asset market equilibrium; and the dynamic stochastic general equilibrium model (DSGE) of exchange rates, which integrates these two preconditions into a general equilibrium analysis of exchange rate determination [1,2,3,4]
In a free trade and open capital market environment, the overall geometric characteristics of the exchange rate network reflect market equilibrium, while the individual network characteristics of each currency reflect the status of the currency in the international monetary system and its influence on other currencies
The network attribute reflected by this exchange rate network characteristic is undoubtedly inherent to a different sovereign currency comprehensively determined with different economic and non-economic factors in the international monetary system
Summary
Exchange rate determination theories have gradually formed theories such as the purchasing power parity theory reflecting commodity market equilibrium; the interest rate parity theory reflecting the asset market equilibrium; and the dynamic stochastic general equilibrium model (DSGE) of exchange rates, which integrates these two preconditions into a general equilibrium analysis of exchange rate determination [1,2,3,4]. In a free trade and open capital market environment, the overall geometric characteristics of the exchange rate network reflect market equilibrium, while the individual network characteristics of each currency reflect the status of the currency in the international monetary system and its influence on other currencies. The spatial interaction of the exchange rate returns of various currencies has increased and presents multi-dimensional, mixed and asymmetric characteristics [5,6,7,8,9]. These new characteristics improve the instability of the global exchange rate market
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