Spillovers and connectedness in foreign exchange markets: The role of trade policy uncertainty

Toan Luu Duc Huynh, Muhammad Ali Nasir and Duc Khuong Nguyen

The Quarterly Review of Economics and Finance, 2023, vol. 87, issue C, 191-199

Abstract: This paper analyses the directional spillover effects and connectedness for both return and volatility of nine US dollar exchange rates of globally most traded currencies under the influence of trade policy uncertainty. We find two interesting results over the study period ranging from December 1993 to July 2019. First, there exists asymmetric spillovers and connectedness among the considered exchange rates when trade policy uncertainty is present. Second, the volatility spillover is stronger than the return connectedness between exchange rate and trade policy uncertainty. These findings are robust to the presence of economic policy uncertainty effects. Concomitantly, the trade policy uncertainty patterns are also found to be useful for predicting currency market dynamics. Our findings contribute to the debate on the impact of trade policy uncertainty on the global economy and financial sector.

Keywords: Exchange rate; Trade policy; Uncertainty; Trade wars; Volatility; Connectedness (search for similar items in EconPapers)
JEL-codes: C1 E2 F2 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:87:y:2023:i:c:p:191-199

DOI: 10.1016/j.qref.2020.09.001

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