|Author Name||MASUJIMA Yuki (Bloomberg L.P.)|
|Creation Date/NO.||July 2019 19-E-048|
|Research Project||Exchange Rates and International Currency|
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This paper investigates what factors are the determinants of a safe haven currency's ability to appreciate during the risk-off episodes. I assess how the safe-haven status and related determinants of 14 currencies changed over time from 2002 until 2017, using a safe-haven index that shows the time-variant tendency of exchange rate movement in response to changes in market uncertainty, measured using the CBOE volatility index (VIX). The panel regression results suggest safe-haven determinants shifted from external sustainability factors (current account surplus) to market driven factors (carry trade opportunity and high liquidity) during and after the Global Financial Crisis. The results highlight the increasing effects that changes in monetary policy stance and market risk appetites have on a currency's safe-haven status. That said, in addition to affecting the exchange rate, the shift between monetary tightening and easing by the Federal Reserve and local central banks may also change the interaction between the appetite for market risk and a currency's safe-haven status.