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In this paper, we first examine how important historical shocks during and after the 2007-2008 global financial crisis affect the size and the persistence of volatilities among exchange rates and the ten-year bond rates of the Fragile Five countries (i.e., Brazil, India, Indonesia, South Africa and Turkey). We then investigate separately the dynamic interactions between exchange rates and the ten-year bond rates of the Fragile Five. We utilize a multivariate GARCH model (FIAPARCH-DCC model) and volatility impulse response functions to achieve these objectives. The results suggest that shocks' positive impacts on expected conditional variances of the variables are largely market-specific and different. Shocks have a more significant impact on bond markets than on foreign exchange markets. We also find that the dynamic conditional correlation series of bonds exhibit much lower correlations than those associated with exchange rate returns. [ABSTRACT FROM AUTHOR]

This study attempts to establish the possible existence of the long-run interrelationship between interest rates, inflation, and exchange rates in five EMEs (Brazil, India, Indonesia, South Africa, and Turkey), what is so-called by Morgan Stanley 'Fragile Five'. To do so, we utilize Li and Lee's [2010. "ADL Tests for Threshold Cointegration." Journal of Time Series Analysis 31 (4): 241–254.] Autoregressive Distributed Lag test for threshold cointegration and apply it to the sample country's time-series data from 2013:m1 to 2018:m12. Overall, our results are threefold: First, there seems to be a long-run positive relationship between actual rates of inflation and nominal interest rates supporting the validity of the ex-post Fisher hypothesis for all the sample countries. Second, the results support the presence of a cointegrating relationship between interest rates and exchange rates for Brazil, India, and Turkey but not for Indonesia and South Africa. Lastly, without exception, exchange rates and actual rates of inflation in all the sample countries tend to co-move in the long-run, implying that the depreciation of their currencies creates an inflationary effect on domestic prices through raising the prices of imported goods. The results above are widely consistent with both theoretical expectations and the relevant empirical literature. [ABSTRACT FROM AUTHOR]