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Impact of economic policy uncertainty on exchange rate volatility of China

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  • Chen, Liming
  • Du, Ziqing
  • Hu, Zhihao

Abstract

This study investigates the impact of economic policy uncertainty (EPU) on China's exchange rate volatility from December 2001 to November 2018. Using the quantile regression, our results show that the impact of EPU on exchange rate volatility in China exhibits asymmetry as well as heterogeneity in different markets. The EPU for China impacts positively and significantly on all quantiles volatilities of exchange rates. Furthermore, we observe that EPU has a mixed effect on exchange rate volatility with apparent economy-by-economy differences. The US, Europe and Japan EPU have significant impacts, while Hong Kong EPU is insignificantly correlated with exchange rate volatility.

Suggested Citation

  • Chen, Liming & Du, Ziqing & Hu, Zhihao, 2020. "Impact of economic policy uncertainty on exchange rate volatility of China," Finance Research Letters, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:finlet:v:32:y:2020:i:c:s1544612319306038
    DOI: 10.1016/j.frl.2019.08.014
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    More about this item

    Keywords

    Quantile regression; Exchange rate volatility; Economic policy uncertainty; Asymmetry; Heterogeneity;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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