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On the Exchange Rates Volatility and Economic Policy Uncertainty Nexus: A Panel VAR Approach for Emerging Markets

Author

Listed:
  • Abir Abid

    (COGI - Comportements, Organisations et Gouvernance des Institutions - UCO - Université Catholique de l'Ouest)

  • Christophe Rault

Abstract

We examine the Economic Policy Uncertainty (EPU) transmission over the Exchange Rate Volatility (ERV) for 8 Emerging Market Economies (EME) using the recent panel VAR methodology of Abrigo and Love (Stata Journal 16:778–804, 2016). The econometric investigation reveals that: (a) both domestic and US-EPU shocks exert positive effects on the ERV, (b) the contribution of the US-EPU to the ERV fluctuations overcomes the own EPU's share, (c) the ERV acts as a pos- sible transmission channel of the US-EPU to the domestic economic activity, (d) the domestic EPU increases in response to a higher US-EPU and vice versa and (e) the latter is surprisingly and markedly sensitive to EME macroeconomic conditions. Our findings are robust to different sensitivity analyses, provide novel insights into EPU international spillovers, and have interesting policy implications for EME deci- sions makers and investors.

Suggested Citation

  • Abir Abid & Christophe Rault, 2021. "On the Exchange Rates Volatility and Economic Policy Uncertainty Nexus: A Panel VAR Approach for Emerging Markets," Post-Print hal-05295005, HAL.
    • Handle: RePEc:hal:journl:hal-05295005
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    2. Adedokun Adeniyi J. & Falayi Olabusuyi R. & Adeyemi Francis O. & Kumeka Terver T., 2022. "Global Economic Uncertainties and Exchange Rate Management in Africa: A Panel Study," Acta Universitatis Sapientiae, Economics and Business, Sciendo, vol. 10(1), pages 161-184, September.
    3. Gong, Yuting & He, Zhongzhi & Xue, Wenjun, 2025. "EPU spillovers and exchange rate volatility," International Review of Financial Analysis, Elsevier, vol. 97(C).
    4. Riadh El Abed & Zouheir Mighri & Abderrazek Ben Hamouda, 2022. "Does Economic Policy Uncertainty Affect Exchange Rate in China and Japan? Evidence from Threshold Cointegration with Asymmetric Adjustment," International Journal of Economics and Financial Issues, Econjournals, vol. 12(1), pages 28-36.
    5. Oğuz Tümtürk, 2023. "Key Macroeconomic Variables under Exchange Rate Volatility: Time-Varying Causality in the Presence of Structural Breaks and Nonlinearity," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(39), pages 49-64, December.
    6. Bibiana Lanzilotta & Gabriel Merlo & Gabriela Mordecki & Viviana Umpierrez, 2023. "Understanding Uncertainty Shocks in Uruguay Through VAR Modeling," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 19(3), pages 399-419, November.
    7. Mingguo Zhao & Hail Park, 2024. "Research on the Dynamic Interrelationship between Economic Policy Uncertainty and Stock Market Returns," JRFM, MDPI, vol. 17(8), pages 1-17, August.
    8. Oğuz Tümtürk, 2022. "Global Uncertainty and Exchange Rate Volatility," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(37), pages 69-84, December.
    9. S. M. Woahid Murad, 2022. "The role of domestic and foreign economic uncertainties in determining the foreign exchange rates: an extended monetary approach," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(4), pages 666-677, October.
    10. Wang, Fan & Pan, Changchun & Wang, Weiqiang, 2023. "Impact of US monetary policy uncertainty on RMB exchange rate volatility:The role of international capital flows," Finance Research Letters, Elsevier, vol. 58(PC).

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    Keywords

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    JEL classification:

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

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