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Time-varying Effects of U.S. Economic Policy Uncertainty on Exchange Rate Return and Volatility in China

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  • Panpan Wang
  • Yishi Li
  • Sixu Wu

Abstract

We examine the mean and volatility spillover effects of U.S. economic policy uncertainty (EPU) on the RMB exchange rate return and the effects’ time-varying features corresponding to the 2015 “8.11” RMB exchange rate reform and the Sino–U.S. trade friction. We find that rising U.S. EPU amplifies the RMB exchange rate return’s volatility at the volatility spillover level while driving the RMB’s appreciation against the USD at the mean spillover level. After the reform’s implementation, the U.S. EPU’s mean spillover on the RMB exchange rate return disappears, while the volatility spillover increases and is further enhanced by trade friction.

Suggested Citation

  • Panpan Wang & Yishi Li & Sixu Wu, 2022. "Time-varying Effects of U.S. Economic Policy Uncertainty on Exchange Rate Return and Volatility in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(7), pages 1807-1820, May.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:7:p:1807-1820
    DOI: 10.1080/1540496X.2021.1937114
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