Synchronization analysis between exchange rates on the basis of purchasing power parity using the Hilbert transform

TL;DR

This paper analyzes the synchronization between USD, euro, and yen exchange rates based on purchasing power parity using the Hilbert transform, revealing high synchronization most of the time but disruptions during asymmetric economic events.

Contribution

It applies Hilbert transform-based synchronization analysis to exchange rates, providing new insights into PPP dynamics over time.

Findings

High synchronization between exchange rates most of the time

Synchronization decreases during asymmetric economic events

Hilbert transform effectively captures nonlinear synchronization patterns

Abstract

Synchronization is a phenomenon in which a pair of fluctuations adjust their rhythms when interacting with each other. We measure the degree of synchronization between the U.S. dollar (USD) and euro exchange rates and between the USD and Japanese yen exchange rates on the basis of purchasing power parity (PPP) over time. We employ a method of synchronization analysis using the Hilbert transform, which is common in the field of nonlinear science. We find that the degree of synchronization is high most of the time, suggesting the establishment of PPP. The degree of synchronization does not remain high across periods with economic events with asymmetric effects, such as the U.S. real estate bubble.