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International currency markets and the COVID‐19 pandemic


  • Hsuan Fu
  • Jui‐Chung Yang


We find that quantifying COVID‐19 pandemic shocks is critical to understanding international currency market returns. Scaled by population, shocks from between‐country differences in the number of weekly COVID‐19 deaths are informative in predicting exchange rate returns. Following Alfaro et al. (2020), we estimate the expected number of COVID‐19 deaths based on an exponential model and use it to construct two pandemic shocks that measure the unanticipated number of deaths on a weekly basis and the time‐varying correction of forecast provided new information from the previous week. We document negative impacts of COVID‐19 propagation on currency returns. In addition, we find that the government response, in particular fiscal and monetary stimulus packages, can help mitigate negative effects of COVID‐19 on currency returns. Our findings are robust to country‐specific pandemic measures, window sizes of the exponential model, and the choice of forecast model.

Suggested Citation

  • Hsuan Fu & Jui‐Chung Yang, 2022. "International currency markets and the COVID‐19 pandemic," Pacific Economic Review, Wiley Blackwell, vol. 27(4), pages 400-422, October.
  • Handle: RePEc:bla:pacecr:v:27:y:2022:i:4:p:400-422
    DOI: 10.1111/1468-0106.12409

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    References listed on IDEAS

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