Government policy approval and exchange rates

Yang Liu () and Ivan Shaliastovich

Journal of Financial Economics, 2022, vol. 143, issue 1, 303-331

Abstract: Measures of US government policy approval are strongly related to persistent fluctuations in the dollar value. Contemporaneous correlations between approval ratings and the dollar approach 50% against advanced economy currencies. High approval ratings further forecast a decline in the dollar risk premium several years ahead and are associated with a persistent increase in economic growth and a reduction in economic volatility. We provide an illustrative model to interpret our empirical evidence. In the model, policy valuations (approvals) are forward-looking and increase at times of high expected policy-related growth and low policy-related uncertainty, which are times of a strong dollar and low dollar risk premium.

Keywords: Exchange rate; Government policy; Risk premium (search for similar items in EconPapers)
JEL-codes: F21 G15 G18 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X21003019
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:143:y:2022:i:1:p:303-331

DOI: 10.1016/j.jfineco.2021.06.031

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().