The financialization of international markets driven by widespread financial innovations resulted in growing paths of volatility for various assets, including exchange rates. This paper investigates the dynamic effects of shocks on exchange rates conditional correlations and analyzes the connectedness between pairs of exchange rates for developed and emerging countries, represented by the BRICS countries plus Turkey (BRICS+T). The sample covers the period from January 2000 to March 2022 in a daily basis. We apply the DCC-GARCH model to obtain conditional correlations of pairwise exchange rates and estimate a SVAR to identify exogenous shocks. The results indicate that shocks to conditional correlation of developed countries exchange rates decrease the conditional correlation in emerging markets. A connectedness index illustrates the dependence among exchange rates and support the presence of time-varying co-movement and volatility connectedness. The findings suggest that concentration of volatility in core countries increases instabilities in emerging economies.
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