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

Abid, Abir

doi:10.1016/j.frl.2019.101378

Cited by 61 publications

(35 citation statements)

References 44 publications

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“…The existing literature suggests host economy macro determinants, including economic growth [43], trade openness [44], the exchange rate [45], institutional quality [46], and financial development [47], are critically important for inflows FDI in the economy. The factors mentioned above have an adverse association with EPU [6,48,49]. Therefore, it is assumable that the availability of the possible nexus between EPU and inflows of FDI.…”

Section: Effects Of Economic Policy Uncertaintymentioning

confidence: 99%

Nexus between Economic Policy Uncertainty and Renewable Energy Consumption in BRIC Nations: The Mediating Role of Foreign Direct Investment and Financial Development

et al. 2021

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In recent literature, the impact of economic policy uncertainty (EPU) on macro aspects have been investigated, but the aspect of energy, precisely renewable energy still to explore. The motivation of the study is to produce fresh evidence regarding the nexus between EPU and renewable energy consumption (REC) with the mediating role of forcing direct investment (FDI) and financial development (FD) in BRIC nations for the period 1997q1–2018q4. The study applied unit root tests following Ng-Perron and Zivot and Andrews for detecting variable’s stationary properties. The long-run cointegration was evaluated by implementing Bayer, Hanck combined the cointegration test, Bound testing approach, and tBDM test. Both linear and non-linear ARDL were implemented to evaluate long-run and short-run shocks, and directional causality was assessed through a non-granger causality test. Furthermore, the study implemented robustness by implementing fully-modified OLS, dynamic OLS, and canonical cointegrating regression (CCR). Unit root test established the variables are stationary after the first difference; moreover, the Bayer and Hanck cointegration test confirmed the long-run association between EPU, FD, FD, and REC in BRIC nations. Accruing to ARDL estimation, adverse effects running from EPU to REC both in the long run and short run. Furthermore, the positive statistically significant linkage revealed for FDI and FD to REC implies that clean energy integration could be augmented with continual inflows of FDI and development of the financial sector. Model estimation with asymmetric assumption, the study documented asymmetric effects running from EPU, FDI, and FD to renewable energy consumption, especially in the long run. Finally, the directional causality revealed unidirectional causality between REC and EPU, whereas the feedback hypothesis was disclosed for FDI and REC] and FD and REC. Study findings postulated that the role of foreign direct investment and financial development is critically significant because technological advancement and capital investment augment clean energy integration through the application of renewable energy.

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Section: Effects Of Economic Policy Uncertaintymentioning

confidence: 99%

Nexus between Economic Policy Uncertainty and Renewable Energy Consumption in BRIC Nations: The Mediating Role of Foreign Direct Investment and Financial Development

et al. 2021

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“…The predictive power of fundamentals on the exchange rate fluctuations remains one of the most discussed puzzles in international economics. While their long-run effects on currency movements are confirmed (Beckmann and Czudaj, 2017), their short-run impacts have much less empirical success (Chen and Chou, 2015) 1 . Nonetheless, the short-run exchange rate dynamics are particularly affected by transitory shocks including the economic policy uncertainty (EPU hereafter) (Bartsch, 2019).…”

Section: Introductionmentioning

confidence: 99%

“…Within this growing literature, the foreign exchange market (FOREX) reaction to the EPU is, to date, explored only by a handful of studies. Firstly, they predict that a surge in the EPU coincides with a national currency depreciation (Abid, 2019;Nilavongse, 2020) as well as a rise of the exchange rate volatility (ERV hereafter) (Chen et al 2019;Bartsch, 2019;Christou et al 2018, Balcilar et al 2016. Secondly, the exchange rate appears more sensitive to the domestic rather than the foreign EPU (Nilavongse et al 2020).…”

Section: Introductionmentioning

confidence: 99%

“…These countries (i) display a higher ERV especially those having adopted floating exchange regimes (ii) face higher levels of uncertainty comparing to advanced economies (Bloom, 2009) and (iii) are extremely vulnerable to shocks spillovers stemming from developed countries (Bhattarai et al 2019). In addition, this paper aims at revealing the extent to which considering cross sectional dependence between countries can affect the 1 The literature highlights a weak empirical performance of fundamentals in predicting exchange rates especially in the short run. See for instance the pioneer study of Meese and Rogoff, (1983).…”

Section: Introductionmentioning

confidence: 99%

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

Abid

Rault

2021

J. Quant. Econ.

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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 (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 possible 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 decisions makers and investors.

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“…While their long-run effects are confirmed (Beckmann and Czudaj, 2017), their short-run implications have much less empirical success (Chen and Chou, 2015). In the short-run, the exchange rate can be affected by transitory shocks including the Economic Policy Uncertainty (EPU) (Bartsch, 2019;Abid, 2019) 1 . As widely supported by applied studies, the latter adversely weighs on economic activity (Baker et al 2016;Bloom, 2009) and financial markets (Pastor and Veronesi, 2012;Brogaard and Detzel, 2015;Arouri et al 2016).…”

Section: Introductionmentioning

confidence: 99%

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

Abid

Rault

2020

SSRN Journal

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

Cited by 61 publications

References 44 publications

Nexus between Economic Policy Uncertainty and Renewable Energy Consumption in BRIC Nations: The Mediating Role of Foreign Direct Investment and Financial Development

Nexus between Economic Policy Uncertainty and Renewable Energy Consumption in BRIC Nations: The Mediating Role of Foreign Direct Investment and Financial Development

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

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

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