Abstract

We assess Exchange Rate Stability (ERS) ratio on post2000 daily data in 11 emerging and advanced floating currencies, estimating a Minimum spanning tree closeness centralities, to further utilize them for a panel VECM and a rolling panel FE regression. Uncovered interest parity (UIP) paradox occurs when the currency depreciates under an increasing interest rate premium. We show that such movements are not only driven by the UIP but also by the size of the central bank’s international reserves, the closeness centrality of a conditional minimum spanning-tree graph and implied volatility on the EUROSTOXX market, later signs a strong exposure towards external funding conditions. The sample covers all emerging currencies, which remained classified a floating regime even at the end of the 2010s according to the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) database – as many of them turned towards stabilized arrangements. Thus, this paper makes a new contribution to the debate on currency valuation impact on emerging markets while highlighting the importance of the instantaneous nature of the UIP paradox.