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Financial markets during the COVID-19 pandemic are characterized by a prolonged period of increased uncertainty. In this paper, we analyze how the announcements of policy interventions and responses, to buffer short-term economic impact of the pandemic and offset financial turmoil, have affected the level of realized volatility in 23 countries. Under the augmented heterogeneous autoregressive model framework, we show that the international calming effect of COVID-19 economic policy actions originates from the US macroprudential policy announcements.

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Highlights We study 1-to-66 day-ahead volatility forecast of six major FX pairs. For short forecast horizons high-frequency dominate low-frequency models. High-frequency models are more accurate during market distress. For longer forecast horizons low-frequency volatility models become competitive. Low-frequency data can be used to accurately predict long-term volatility.