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The Asymmetric Effect of the Extreme Changes in the Economic Policy Uncertainty on the Exchange Rates: Evidence from Emerging Seven Countries

Author

Listed:
  • Alina Maydybura

    (Department of Business and Management, RIT Dubai, Dubai, UAE)

  • Raheel Gohar

    (College of Business Administration, Al Yamamah University, Riyadh, Saudi Arabia)

  • Asma Salman

    (College of Business Administration, American University in the Emirates, Dubai, UAE)

  • Wing-Keung Wong

    (Department of Finance, Fintech & Blockchain Research Center and Big Data Research Center, Asia University, Taichung, Taiwan5Department of Medical Research, China Medical University Hospital, China Medical University, Taichung, Taiwan6Department of Economics and Finance, The Hang Seng University of Hong Kong, Shatin, Hong Kong)

  • Bisharat Hussain Chang

    (Department of Business Administration, Sukkur IBA University, Sukkur, Sindh, Pakistan)

Abstract

This research has focused on examining the connection between uncertainties in economic policies and exchange rates. This research extends the literature to this field by analyzing the impact of small to large negative along with small to large positive variations in the economic policy uncertainty on the currency rates. For this purpose, this research uses the Granger causality in the quantile test and a newly constructed multiple asymmetric threshold nonlinear ARDL (MATNARDL) model. When a nonlinear ARDL model is utilized, our results confirmed the nonlinear impact in three nations only. In contrast, when the MATNARDL technique is utilized, these findings do confirm the nonlinear effect for all nations. Furthermore, when the Granger causality in the quantile test is applied, the impact differs over various quantiles. In general, the enhanced framework encourages us to analyze better how EPU affects the exchange rate in the emerging seven (E7) nations. The findings of our research may be useful for state banks to design policies to make interventions in the foreign currency market.

Suggested Citation

  • Alina Maydybura & Raheel Gohar & Asma Salman & Wing-Keung Wong & Bisharat Hussain Chang, 2023. "The Asymmetric Effect of the Extreme Changes in the Economic Policy Uncertainty on the Exchange Rates: Evidence from Emerging Seven Countries," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 18(02), pages 1-24, June.
    • Handle: RePEc:wsi:afexxx:v:18:y:2023:i:02:n:s2010495222500312
    DOI: 10.1142/S2010495222500312
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    More about this item

    Keywords

    E7 nations; MATNARDL model; NARDL model; exchange rate; economic policy uncertainty;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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