The Asymmetric Effect of the Extreme Changes in the Economic Policy Uncertainty on the Exchange Rates: Evidence from Emerging Seven Countries

Alina Maydybura (), Raheel Gohar (), Asma Salman, Wing-Keung Wong and Bisharat Hussain Chang
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Alina Maydybura: Department of Business and Management, RIT Dubai, Dubai, UAE
Raheel Gohar: College of Business Administration, Al Yamamah University, Riyadh, Saudi Arabia
Wing-Keung Wong: Department of Finance, Fintech & Blockchain Research Center and Big Data Research Center, Asia University, Taichung, Taiwan5Department of Medical Research, China Medical University Hospital, China Medical University, Taichung, Taiwan6Department of Economics and Finance, The Hang Seng University of Hong Kong, Shatin, Hong Kong
Bisharat Hussain Chang: Department of Business Administration, Sukkur IBA University, Sukkur, Sindh, Pakistan

Annals of Financial Economics (AFE), 2023, vol. 18, issue 02, 1-24

Abstract: This research has focused on examining the connection between uncertainties in economic policies and exchange rates. This research extends the literature to this field by analyzing the impact of small to large negative along with small to large positive variations in the economic policy uncertainty on the currency rates. For this purpose, this research uses the Granger causality in the quantile test and a newly constructed multiple asymmetric threshold nonlinear ARDL (MATNARDL) model. When a nonlinear ARDL model is utilized, our results confirmed the nonlinear impact in three nations only. In contrast, when the MATNARDL technique is utilized, these findings do confirm the nonlinear effect for all nations. Furthermore, when the Granger causality in the quantile test is applied, the impact differs over various quantiles. In general, the enhanced framework encourages us to analyze better how EPU affects the exchange rate in the emerging seven (E7) nations. The findings of our research may be useful for state banks to design policies to make interventions in the foreign currency market.

Keywords: E7 nations; MATNARDL model; NARDL model; exchange rate; economic policy uncertainty (search for similar items in EconPapers)
JEL-codes: C22 E44 G15 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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DOI: 10.1142/S2010495222500312

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