Impact of economic policy uncertainty on exchange rate volatility of China

Chen, Liming; Du, Ziqing; Zhihao, Hu

doi:10.1016/j.frl.2019.08.014

Cited by 141 publications

(82 citation statements)

References 26 publications

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“…The similarity of the crude oil importers between China and Japan, and the sensitivity of EPU Japan to the global oil demand shock might contribute to the superior predictive power of EPU Japan compared with other countries. Third, compared with other countries, previous literature shows the EPU from Japan and United Kingdom are closely related to Chinese economic conditions such as the financial conditions (Liu Z. et al, 2019;Li and Zhong., 2020;Ahmadi et al, 2020), monetary aggregate (Han et al, 2016), exchange rate (Chen et al, 2020;Zheng and Kaizoji, 2019), and market uncertainty Smales, 2020). These factors are closely related to the crude oil market (Ahmadi et al, 2020;Yousefi and Wirjanto, 2004;Ratti and Vespignani, 2013), thus it is reasonable that the EPUs from these two counties may contain information of the future volatility of the INE crude oil futures market.…”

Section: Out-of-sample Evaluationmentioning

confidence: 99%

Macroeconomic Uncertainty and Crude Oil Futures Volatility–Evidence from China Crude Oil Futures Market

Yang

2021

Front. Environ. Sci.

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This paper investigates whether the macroeconomic uncertainty factors can explain and forecast China’s INE crude oil futures market volatility. We use the GARCH-MIDAS model to investigate the explaining and predicting power of the macroeconomic uncertainties. We considered various geopolitical risk (GPR) indices, economic policy uncertainty (EPU) indices, and infectious disease pandemic (IDEMV) indices in our model. The empirical results suggest that the geopolitical risk, the geopolitical act risk, the global economic policy uncertainty, the economic policy uncertainty from the United Kingdom, and the economic policy uncertainty from Japan comprehensively integrate the information contained in the rest factors, and have superior predictive powers for INE crude oil future volatility. These findings highlight the importance of the impact of macroeconomic uncertainty factors has on the crude oil futures market, and indicate that the macroeconomic uncertainties need to be considered when explaining and forecasting crude oil futures market volatility.

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Section: Out-of-sample Evaluationmentioning

confidence: 99%

Macroeconomic Uncertainty and Crude Oil Futures Volatility–Evidence from China Crude Oil Futures Market

Yang

2021

Front. Environ. Sci.

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“…In other words, the increase in prices and wages is reflected in consumer prices. The modeling of exchange rate PT needs to use some macroeconomic factors such as inflation, inflation volatility, interest rate volatility, exchange rate volatility, the output gap, oil price growth, import price, export price, macroeconomic performance money supply and the degree of trade openness in the relevant literature (Junior, 2007;Chang and Tsong, 2010;Lin and Wu, 2012;Shah et al, 2017;Liming et al, 2019;Phuc and Duc, 2019). In addition to these factors, uncertainties are also included in the model in recent works (Balcilar et al, 2015;Roubaud and Arouri, 2018;Bartsch, 2019;Noria and Bush, 2019).…”

Section: Introductionmentioning

confidence: 99%

Modeling the exchange rate pass-through in Turkey with uncertainty and geopolitical risk: a Markov regime-switching approach

Bilgili

Ünlü

Gençoğlu

et al. 2021

AEA

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Purpose This paper aims to investigate the pass-through (PT) effect in Turkey by using quarterly data for the period 1998: Q1-2019: Q2 to understand the dynamic potential effects of exchange rates on domestic prices. Design/methodology/approach The paper launches several nonlinear models in which the basic determinants of domestic prices in Turkey are determined through Markov regime-switching models (MSMs). Hence, this research follows the variables of the consumer price index (CPI), USD exchange rate, gross domestic product (GDP; demand side of the economy), industrial production index (production side of the economy), economic uncertainty and geopolitical risk index for Turkey. Findings This work explores that the exchange rate and demand side of the economy (GDP) follow a positive nonlinear relationship with CPI at both regimes. The production side of the economy (IP) affects negatively the CPI during regime 0. Economic uncertainty influences the CPI positively at Regime 1, while geopolitical risk has a negative association with CPI at Regime 0. Eventually, the paper provides some policy proposals associated with the impacts of GDP, IP, economic uncertainty and geopolitical risk on CPI in Turkey. Originality/value One may claim that any PT model, which does not observe the possible structural or regime shifts in estimated parameters, might fail to estimate the coefficients unbiasedly and efficiently. Hence, this work differs from available relevant works in the literature since this paper considers linearity or nonlinearity important and reveals that the relevant PT model follows a nonlinear path rather than a linear path, this nonlinear path is converged strongly by MSMs and estimates the significant regime shifts in the constant term and, in parameters of independent variables of PT by MSMs.

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“…In the literature [ 42 ], Chen et al concluded that there was an asymmetric impact of EPU on exchange rate volatility in China, and this analysis result was also verified in Figure 11 b,c. However, [ 42 ] did not identify the specific time period for the asymmetric correlation between the policy and the exchange rate market, nor did it analyze the difference in the impact of China–US policy uncertainty on exchange rate fluctuations. As can be seen from Figure 11 b, China’s economic policy had a significant impact on the exchange rate beginning in June 2016, with a leading order of one month ( Figure 11 a), and this influence tended to be nonsignificant after May 2018.…”

Section: Resultsmentioning

confidence: 53%

“…Theoretically, EPU has both direct and indirect impacts on exchange rate volatility. However, there is a scarce body of literature on the impact of EPU on exchange rate volatility ([ 41 , 42 ]). If there is a completely free trade market between countries, then there is a certain internal relationship between the exchange rate and trade.…”

Section: Resultsmentioning

confidence: 99%

Information Flow Analysis between EPU and Other Financial Time Series

Yao

2020

Entropy

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We investigate the strength and direction of information flow among economic policy uncertainty (EPU), US imports and exports to China, and the CNY/US exchange rate by using the novel concept of effective transfer entropy (ETE) with a sliding window methodology. We verify that this new method can capture dynamic orders effectively by validating them with the linear transfer entropy (TE) and Granger causality methods. Analysis shows that since 2016, US economic policy has contributed substantially to China-US bilateral trade and that China is making passive adjustments based on this trade volume. Unlike trade market conditions, China’s economic policy has significantly influenced the exchange rate fluctuation since 2016, which has, in turn, affected US economic policy.

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Impact of economic policy uncertainty on exchange rate volatility of China

Cited by 141 publications

References 26 publications

Macroeconomic Uncertainty and Crude Oil Futures Volatility–Evidence from China Crude Oil Futures Market

Macroeconomic Uncertainty and Crude Oil Futures Volatility–Evidence from China Crude Oil Futures Market

Modeling the exchange rate pass-through in Turkey with uncertainty and geopolitical risk: a Markov regime-switching approach

Information Flow Analysis between EPU and Other Financial Time Series

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