Gravity in FX R-Squared: Understanding the Factor Structure in Exchange Rates

We relate the risk characteristics of currencies to measures of physical, cultural, and institutional distance. The currencies of countries which are more distant from other countries are more exposed to systematic currency risk. This is due to a gravity effect in the factor structure of bilateral exchange rates: When a currency appreciates against a basket of all other currencies, its bilateral exchange rate appreciates more against the currencies of distant countries. As a result, currencies of peripheral countries are more exposed to the systematic variation than currencies of central countries. Trade network centrality is the best predictor of a currency’s average exposure to systematic risk.

我们将货币的风险特征与地理距离、文化距离和制度距离的度量联系起来。与其他国家距离更远的国家的货币更容易受到系统性货币风险的影响。这是由于双边汇率的因子结构中存在一种引力效应：当一种货币相对于所有其他货币组成的一篮子货币升值时，它与距离较远国家的货币的双边汇率升值幅度更大。因此，外围国家的货币比中心国家的货币更容易受到系统性波动的影响。贸易网络中心性是一种货币对系统性风险平均暴露程度的最佳预测指标。