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Economic policy uncertainty and exchange rates in emerging markets: Short and long runs evidence

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  • Abid, Abir

Abstract

We revisit the association between fundamentals and exchange rates in emerging markets relying on the role of the Economic Policy Uncertainty (EPU) in explaining /forecasting currency movements. Using ARDL model, we show that EPU plays a key role in explaining exchange rates in short and long runs. We also find that the EPU improves the forecasting power of macroeconomic models of exchange rate in both horizons. Our findings provide an empirical justification of the scapegoat theory.

Suggested Citation

  • Abid, Abir, 2020. "Economic policy uncertainty and exchange rates in emerging markets: Short and long runs evidence," Finance Research Letters, Elsevier, vol. 37(C).
    • Handle: RePEc:eee:finlet:v:37:y:2020:i:c:s1544612319305781
    DOI: 10.1016/j.frl.2019.101378
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    More about this item

    Keywords

    Economic policy uncertainty; Exchange rates; Emerging economies; Cointegration;
    All these keywords.

    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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