Is there an Interdependence in Foreign Exchange Markets During Non-Crisis Periods? Empirical Evidence from Mena Countries

The purpose of this article is to investigate the existence of volatility interdependence in different fixed-exchange-rates markets during non-crisis periods. Based on daily exchange rates from four Middle East and North African (MENA) countries (Saudi Arabia, Kuwait, Morocco, and Tunisia), we use an original approach, combining proper segmentation of our data sample with univariate and multivariate GARCH models. The main result is that fixed exchange rates do show different levels of volatility interdependence to the international market in both stable and crisis periods. Moreover, the type of exchange rate regime plays a significant role in maintaining the interdependence, while introducing flexibility reforms tend to reduce it and to increase the impacts of past shocks.