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Migration fears and exchange rate volatility in France, Germany, and the UK: A GARCH-MIDAS framework

Author

Listed:
  • Olaniran, Abeeb
  • Akanni, Lateef
  • Salisu, Afees

Abstract

We explore the role of fear associated with migration in predicting exchange rate volatility of Germany, France, and the United Kingdom within the context of the generalized autoregressive conditional heteroscedastic (GARCH) mixed-data-sampling (MIDAS) framework using United States dollar (USD) as the reference currency. While we adopt the quarterly Migration Fear Index and daily exchange rate of Euro (for France and Germany) and GBP (for the UK) to USD for the nexus between migration anxiety and exchange rate volatility, we equally augment our model with Migration Policy Uncertainty (MPU) to examine the joint predictability of the two migration fears proxies on exchange rate volatility. We conduct an empirical analysis that covers the full sample period which is further partitioned into pre- and post-GFC periods to see if the nexus is sensitive to crises periods. We find evidence of migration fears predicting exchange rate volatility of the G-3 country considered, given the statistical significance of our model’s slope coefficient. Although the influence of migration fears on the strengths of the euro and pounds relative to the USD differ, as migration fear causes the former to depreciate and the latter to appreciate, both currencies exhibit high volatility persistence during the period under scrutiny. Our findings have implications for policy-makers on whose shoulders the responsibility of exchange rate management falls.

Suggested Citation

  • Olaniran, Abeeb & Akanni, Lateef & Salisu, Afees, 2024. "Migration fears and exchange rate volatility in France, Germany, and the UK: A GARCH-MIDAS framework," MPRA Paper 123196, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123196
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    References listed on IDEAS

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    4. Arthur Korus & Kaan Celebi, 2019. "The impact of Brexit news on British pound exchange rates," International Economics and Economic Policy, Springer, vol. 16(1), pages 161-192, March.
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    7. Czudaj, Robert L., 2018. "Is equity market volatility driven by migration fear?," Finance Research Letters, Elsevier, vol. 27(C), pages 34-37.
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    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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