A study on the dynamics of exchange rate volatility spillover network: Evidence from Central Asia

Exchange rate volatility interacts closely with capital market prices and have a huge impact on import-export trade and foreign investment in the real economy. This paper adopted the VAR-based spillover index approach to explore the exchange rate risk contagion among belt-road countries. By taking Central Asian countries as example, we find that the internal interaction is extremely weak among Central Asian currency markets while the Kyrgyz currency plays a relatively important role in the entire region. Moreover, spillovers among Central Asian currency markets are inevitably influenced by major economic/political events, which needs further study in the future. Empirical results contribute to the policy making of regulators and trading behaviours of investors in the foreign currency market.