Correlation Of Fluctuations In Exchange Rates Of Major International Currencies Post-crisis Era

Fluctuations in the exchange rate reflects the rise and fall of the realeconomy, while rates in turn affect the real economy. In the foreign exchangemarket, foreign exchange rates fluctuate due to a variety of financialinformation. Also different foreign exchange rates have mutual links andinfluence which form the correlation of fluctuations between eachother.Correlation studies can provide the prediction of exchange ratefluctuations for reference under certain conditions.The study of thefluctuations of exchange rates make a guiding significance on how to adjustalong with it as a whole economy.This article describes the correlation between the common theory thatdescribe the correlation between variables by correlation coefficient.,whichincludes the Pearson correlation coefficient correlation coefficient,Kendall’s rank correlation coefficient, Spearman rank correlationcoefficient, Gini correlation coefficient. However, the relationshipsbetween the foreign exchange markets are more complex.And mostly,they arenonlinear correlation pattern asymmetry and tail-related.So the linearcorrelation coefficient analysis methods can not accurately reflect theforeign exchange market information. Therefore, this article will introduceCopula theory for correlation analys which focus more on the underlyingstructure and tail correlation coefficient. This paper summarizes theresearch status of Copula theory in terms of exchange rates, and introducesfive typical Copula function.It also analyzes the parameters derived from theCopula function, and the method of how to construct the model.Through empirical research, respectively, the degree of correlationbetween the RMB exchange rate,the dollar, the euro,and the yen were analyzed.We use non-parametric kernel density estimation and the empiricaldistribution to fit the marginal distribution. The joint distribution of theexchange rate model was constructed by several major Copula function.Then,we select the best Copula function to determine rates the degree of correlationbetween markets. The results showed that on the post-crisis era the top tailU.S. dollar and the euro exchange rate were in very weak correlation, the toptail on the euro and the yen were in weak correlation, the upper and lowerend of the dollar and the yen are independent, the top tail on the renminbiand the yen were in weak correlation, the low tail on the yuan and the euroalmost independent. Finally, the full article summarizes the whole researchand presents prospects for future research issues.