Does uncertainty promote exchange rate volatility? Global evidence

IF 2.3 Q2 BUSINESS, FINANCE

Studies in Economics and Finance Pub Date : 2023-06-23 DOI:10.1108/sef-12-2022-0579

Muhammad Aftab, M. Naeem, M. Tahir, Izlin Ismail

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引用次数: 1

Abstract

Purpose Exchange rate volatility is an important factor affecting investors and policymakers. This study aims to examine the impact of uncertainties, in terms of changes in economic policy, monetary policy and global financial markets, on exchange rate volatility. Design/methodology/approach The study uses the GARCH (1,1) univariate model to calculate exchange rate volatility. Economic and monetary policy uncertainties are measured using news-based indices, while global financial market volatility is measured using the implied volatility index. Panel autoregressive distributed lag modeling is used to analyze the impact of uncertainty on exchange rate volatility in the short and long run. The sample consists of 26 developed and emerging markets from 2005 to 2020. Findings The study finds that economic policy uncertainty significantly increases exchange rate volatility. Similarly, global financial market uncertainty leads to increased exchange rate volatility. The effect of US monetary policy uncertainty reduces exchange rate volatility. Originality/value This research contributes to the existing literature on exchange rate fluctuations by examining the impact of uncertainties on exchange rate volatility. The study uses novel news-based indices for measuring economic and monetary policy uncertainties and includes a broader sample of emerging and advanced markets. The findings have important implications for investors and policymakers.

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不确定性是否会促进汇率波动？全球证据

目的汇率波动是影响投资者和决策者的一个重要因素。本研究旨在考察经济政策、货币政策和全球金融市场变化方面的不确定性对汇率波动的影响。设计/方法/方法本研究使用GARCH（1,1）单变量模型来计算汇率波动率。经济和货币政策的不确定性使用基于新闻的指数来衡量，而全球金融市场的波动性使用隐含波动性指数来衡量。面板自回归分布滞后模型用于分析不确定性对短期和长期汇率波动的影响。样本包括2005年至2020年的26个发达市场和新兴市场。研究发现，经济政策的不确定性显著增加了汇率波动。同样，全球金融市场的不确定性导致汇率波动加剧。美国货币政策不确定性的影响降低了汇率波动。原创性/价值这项研究通过研究不确定性对汇率波动的影响，为现有的汇率波动文献做出了贡献。该研究使用新的基于新闻的指数来衡量经济和货币政策的不确定性，并包括更广泛的新兴和发达市场样本。研究结果对投资者和政策制定者具有重要意义。

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来源期刊

Studies in Economics and Finance BUSINESS, FINANCE-

CiteScore

4.30

自引率

10.50%

发文量

期刊介绍： Topics addressed in the journal include: ■corporate finance, ■financial markets, ■money and banking, ■international finance and economics, ■investments, ■risk management, ■theory of the firm, ■competition policy, ■corporate governance.