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

Abir Abid

Finance Research Letters, 2020, vol. 37, issue C

Abstract: We revisit the association between fundamentals and exchange rates in emerging markets relying on the role of the Economic Policy Uncertainty (EPU) in explaining /forecasting currency movements. Using ARDL model, we show that EPU plays a key role in explaining exchange rates in short and long runs. We also find that the EPU improves the forecasting power of macroeconomic models of exchange rate in both horizons. Our findings provide an empirical justification of the scapegoat theory.

Keywords: Economic policy uncertainty; Exchange rates; Emerging economies; Cointegration (search for similar items in EconPapers)
JEL-codes: C22 E44 G15 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:37:y:2020:i:c:s1544612319305781

DOI: 10.1016/j.frl.2019.101378

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