The role of domestic and foreign economic uncertainties in determining the foreign exchange rates: an extended monetary approach

S. M. Woahid Murad ()

Journal of Economics and Finance, 2022, vol. 46, issue 4, No 3, 666-677

Abstract: Abstract This study extends the monetary model of the exchange rate by incorporating news-based domestic and US economic policy uncertainties (EPUs). We consider 12 developed and developing economies and use monthly data covering 2000:M1 to 2017:M2. The extended monetary model is estimated by the panel quantile regression of Machado and Santos Silva (2019) and Pesaran (2006) common correlated effects within linear and nonlinear panel ARDL frameworks. The estimates illustrate the significant effects of EPUs on developed and developing economies. The ARDL models show that the impact of EPUs is mostly a long-run phenomenon. The Wald test statistics confirm asymmetric effects of EPUs at different quantiles. Moreover, the Wald statistics also support the asymmetric effects of increasing and decreasing EPUs. Overall, domestic, and foreign economic uncertainties significantly affect developed and developing economies’ exchange rates, at least in the long run. Therefore, economic uncertainty should be considered in determining the exchange rate. This extended model might be more appropriate in the post-Covid-19 era.

Keywords: Exchange rates; Economic policy uncertainty; Quantile regression; Panel ARDL model; Asymmetric effect (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s12197-022-09589-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:jecfin:v:46:y:2022:i:4:d:10.1007_s12197-022-09589-5

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/12197/PS2

DOI: 10.1007/s12197-022-09589-5

Access Statistics for this article

Journal of Economics and Finance is currently edited by James Payne

More articles in Journal of Economics and Finance from Springer, Academy of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().